Germany: Wait & See

Much has been written about Germany as a beneficiary of the Eurozone crisis. Branded the last ‘safe haven’ on the crisis-plagued continent, it is frequently suspected of living at the expense of the European Union by imposing austerity policies that protect German taxpayers and leave others vulnerable. But in the wake of the Ukraine crisis, even the economic hegemon could finally stumble – and with it the local transport equipment industry.

As the largest creditor country in the Eurozone, Germany is said to have the biggest clout in determining the Eurozone’s future – but only if economic conditions are stable. With the east-west standoff over Ukraine leading to tit-for-tat sanctions from the US and Europe on the one hand and Russia on the other, just that stability is now in jeopardy.

While Russia’s share of the global economy is small, about three per cent, it is one of Germany’s 10 largest trading partners, according to the Association of German Chambers of Commerce and Industry, and nearly 300,000 German jobs depend on exports to Russia. The import ban Russia introduced in retaliation to EU measures triggered by the Ukraine crisis has therefore left many local businesses reeling, as the weak ruble and the rising prices of imported products are impeding market access from the outside.

The setback is even more painful given that Europe only just emerged from recession in the second quarter of 2013, prompting investors to question the region’s financial stability and placing an unwelcome strain on German business confidence.

Unsurprisingly, it wasn’t the old tale of German hegemony that was most discussed at the IAA Commercial Vehicle Show last September, but the tense relationship between the EU as a whole and Russia. “There was pessimism in the air,” recalls Gary Beecroft, CEO of UK consultancy Clear. “The trailer industry and its suppliers had had a good first half in 2014, but there was less confidence in the outlook for the last quarter and the beginning of 2015.”

According to Beecroft, Germany will have to endure a rough patch before returning to sustainable growth, which is why Gero Schulze Isfort, Managing Director Sales & Marketing at Krone, remains cautious about the immediate future. For now, his strategy is firmly based around the brand’s German home market and neighbouring countries like Poland or Denmark – at least until the Ukraine crisis is ridden out. “You need to be a careful decision maker these days and ensure you seize the opportunities in the markets of today and tomorrow,” he says. “Nobody can predict when the conflict will come to an end.”

Then again, even a cautious executive like Schulze Isfort isn’t left cold by positive news emerging from the south of Europe. “Some countries in Europe are on the rise rise again and even exceed pre-crisis levels, which is promising,” he admits. “Especially the south and south-east of Europe will experience significant growth – probably not right away, but soon.”

Clear’s Gary Beecroft is equally bullish about Germany’s long-term perspectives, despite the current lull. “It is entirely normal when recovering from a recession for there to be a year of little or zero growth in the trailer market and 2015 will be such a year. Indeed, it has been part of the Clear forecast since 2011. Look back at the recessions of 1993, 2003 and now 2009, and the same pattern is clearly discernible.”

Agrees Lars Brorsen, CEO of international equipment powerhouse Jost, which has recently taken over Mercedes-Benz’ Trailer Axle business to add a new string to its bow in 2015. “We expect a tough first half of 2015 and downward pressure to level out in the second half. Overall, we see a growth trend for the long term, but the cycle is likely to dip at first.” Notably scarred by the GFC, Brorsen says remaining conservative is the safest option to avoid investing too much energy, too early. “Our best guess is to not expect an upswing in 2015-16 but to keep capacities and costs under control, safeguard efficiencies and do our homework in terms of flexibility.”

Discontent with the current business climate in Germany, almost every main equipment brand has a new innovation coming up to keep the market excited – especially in the axle and suspension field. While novice Jost Achsen-Systeme will be busy selling Mercedes-Benz Trailer Axles in 2015, Gigant will be stirring up the market by promoting a Krone-branded nine-tonne axle sold directly via the Werlte-based OEM.

Local juggernaut SAF-Holland, meanwhile, will be responding with the launch of two new variants of the Intra model – enabling it to compete on the high-end market as well as in the low cost segment. The company also has a new carbon fibre axle in the works, as well as an aluminium composite drum that could reduce the weight per axle by up to 30kg.

Despite that surge of innovation, SAF-Holland is just as cautious about the immediate future as everyone else. Observing the situation in Russia, CEO Detlef Borghardt can’t see “any movement any time soon”, indicating short-term growth is more likely across the Atlantic than in Germany.

But, that doesn’t mean Germany is about to be outperformed by the US. If you ask Gary Beecroft, the country probably has more potential than some think – even if he had to wipe some 10,000 units from his forecast since the Ukraine crisis broke out. The Clear thesis is that the gloom and doom of recent months has been “overdone” and that confidence in the economy will return in late 2015, leading to substantial growth in the trailer market in 2016.

Until then, Gero Schulze Isfort does not expect much movement on the German trailer market. Alluding to what is seen as the temporary retreat of an Asian OEM from the German market, he says entry barriers are at a historical high at the moment. “A market entry – even backed with large financial capacity – doesn’t run by itself. We have seen this in the last few months by one of our competitors who did not even start a new production site in Germany but already stopped its activities for the time being,” he says, adding that finding the right balance between quality and cost effectiveness is critical. “The market is very tough but full of potential if you get the product right.”

After increasing his company’s revenue by three per cent in 2013, Jan Willem Jongert, CEO of Austrian company Schwarzmüller, is confident that the Austrian OEM is ready to tap just that potential. He publically sounded the attack on the German market at the last IAA show, right after taking over the exhibition space formerly occupied by the backtracking Asian brand Schulze Isfort quoted.

With Germany now losing steam, lifting his company’s profile in a sustainable way could be more of a challenge than he first expected, but the ex-Jungheinrich executive has a strong vision for the Schwarzmüller brand and its 1900 staff – and he is not known for giving up easily. The goal, Jongert says, is to turn over around €450 million and sell more than 10,000 units annually by the end of the decade, many of them in Germany.

Capitalising on the company’s long and proud history, he would also like to see Schwarzmüller close the gap to German trio Schmitz Cargobull, Krone and Kögel – challenging Kässbohrer and Lecitrailer for fourth place in Europe.

Kässbohrer, meanwhile, has conceived its own master plan. The company, which is owned by Turkish juggernaut Tirsan Treyler, has almost doubled its sales in 2014, according to vehicle registration data provided by the German Association of the Automotive Industry (VDA), and is highly motivated to retain the number four spot on the sales ranking and maybe even reach for third. The result could be a standoff between Schwarzmüller, Lecitrailer and potentially Kögel, with Schmitz Cargobull and Krone using the confusion to widen the gap between them and the rest of the pack.

In Hanover, both already indicated that they would push hard to cover additional ground in 2015, with a special focus on providing more complex service packages that tie transport businesses closer to the OEM. Krone, for example, showed a fully Krone-branded vehicle at the IAA show, with the German company providing everything from the axle through to the spare tyre. Even a specially designed Krone rear light is now available, making for a fully Krone branded vehicle that should elevate customer loyalty to a new high going forward.

“The aftermarket is an important part of the business and a powerful revenue source, so it’s only natural OEMs are trying to tap into that potential,” an industry expert told Global Trailer. “Naturally, this will change supply dynamics in the long run and force OE suppliers to become more inventive to retain visibility in the transport market.”

As a result, R&D departments keep humming along in the background as Germany is trying to handle the fallout of the Ukraine crisis. In fact, the struggle for a front-row spot in the innovation race is widely perceived as a sign that the country’s economic foundation is strong enough to weather out the storm brewing in the east. It’s just that no one is willing to rush headlong into the future anymore before the coast is 100 per cent clear again.

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