Germany’s trailer market

If data doesn’t lie, Germany’s trailer manufacturing fraternity must have every reason to be optimistic about the future: Europe’s largest economy finished 2015 with a budget surplus of 0.5 per cent – the highest since the turn of the century – and saw healthy GDP growth of 1.7 per cent*.

The resulting mix of low unemployment, rising wages and low inflation has led consumption to rise 1.9 per cent and fuelled demand for road transport equipment, even though political turmoil in the Eurozone is all but settled. With the plummeting oil price acting like an extra tax cut for local businesses and retail sales on a steady growth path too, all signs seem to point to a successful 2016 – statistically speaking, at least.

But, how ‘honest’ is such data amid the slowdown in China, global stock market insecurity and an unresolved refugee crisis in Europe? According to Ingo Meinert, CIO Multi Asset Europe at Allianz Global Investors in Frankfurt, the short-term outlook for Germany may not be as rosy as it may seem. Quoting a recent survey on business confidence, he says the mood has dropped sharply since the beginning of 2016 – a landslide just as dramatic as those seen in the wake of 9/11 or the financial crisis in 2008.

“Structural weaknesses such as the high level of corporate debt and the existing overcapacity in China are again in the spotlight and expected to stay there,” he explains, effectively saying that China and other emerging markets have failed to prepare for a changing global business environment. As a result, they may not be able to provide the same growth outlook any more than in the past. “And, with lower growth rates expected in these regions, an export nation like Germany will suffer.”

Amid that existential threat, Meinert says the EU community may not prove coherent enough to survive the political quarrel surrounding the seething refugee debate – a scenario that would likely see Germany as the main victim but may not be extrapolated from a balance sheet alone. “Rarely, the idea of a united Europe was so endangered as it is at the moment,” he told German news service Focus Online in January.

As a result, Meinert is expecting some sort of ‘cold drop’ in 2016, where the “tailwind of the global economy is becoming a headwind” for Germany, as he puts it. While sources like the OECD are much more optimistic about the country’s ability to cope with change – saying slowing demand from emerging market economies will gradually be offset by stronger performance within the Eurozone – truck powerhouse Daimler recently stirred the rumour mill by releasing a future outlook that was more cautious than widely anticipated. 

Despite a strong 2015 – net profit for the year rose 23 per cent to €8.9 billion – the powerful OEM is only expecting a “modest” rise in both revenue and EBIT for 2016, with higher planned investment also weighing in. Compared with the company’s 2015 guidance for “significant” growth, the announcement caused Daimler shares to drop 5.5 per cent and prompted some investors to claim the company had peaked – and with it Germany’s recovery.

Albeit a warning sign, Daimler’s cautiousness doesn’t necessarily mean Germany’s positive 2015 performance was misleading, though. As a global conglomerate, the company is arguably more sensitive to weak performance in emerging markets and has to take on a more global view than the average business – prompting many an expert to predict a 2016 result somewhere in between Meinert’s worst case scenario and the OECD’s optimistic outlook.

Joerg Zeuner, Chief Economist at Germany’s state-owned development bank, KfW, for example, says the country has grown slightly “above potential” in 2015 and could continue to do so on the back of strong domestic consumption. Concerns about China, however, would “illustrate where the relevant economics risks lie – primarily in the external environment.”

The result is an environment where businesses need to have the right strategy in place to tap into local growth opportunities while simultaneously navigating the extremely volatile global business environment Germany is tied into – a delicate balancing act the transport equipment industry has proven to be able to master before.

In 2014-15, it was facing an equally daunting foreign-borne challenge when German-Russian trade effectively came to a halt in the wake of the Crimea crisis. While the initial fall-out was substantial, domestic consumption dampened the fall and eventually helped the industry stabilise: “Stronger growth in western and central Europe enabled us to more than compensate for the low number of orders from Russia,” agrees Ulrich Schümer, Chairman of the Board of market-leading OEM, Schmitz Cargobull.

Buoyed by a recovering Europe, he says the company will be exhibiting at the upcoming IAA trade show in September with newfound optimism – despite the volatility in China and continued weak demand from Russia. In fact, with many an analyst now arguing that increased public spending to handle the refugee influx might actually give the German economy a boost instead of a jolt, he can be confident that domestic demand will continue to play an important role for Schmitz’ 2016 sales performance.

Runner-up Krone has been equally focused on homegrown sales in 2014-15, but doesn’t quite share the same enthusiasm about the coming season, as Managing Director, Bernard Krone, revealed in a December statement. To him, even the best set of data will only reveal part of the picture.

“We are currently experiencing fierce competition in both markets – agricultural machinery and commercial trailers,” he commented. “Our sales have shown steady growth in past few years [but] this trend cannot be expected to continue every year.”

In his statement, Krone revealed that 29.4 per cent of group sales were generated in Germany during 2014-15, a slight increase over 2013-14, while international sales declined by about one per cent. Uncoupled from the agriculture division, domestic trailer sales grew by eight per cent – indicating that Germany could indeed be the place to be in 2016, regardless of the official guidance given.

Up-and-coming Polish brand Wielton is of the same opinion and has made Germany its main target for sales growth in 2016 – even though 94 per cent of the 300,875-unit-strong German trailer market are being covered by local powerhouse Schmitz Cargobull and second-placed Krone.

“With more than 54,000 new registrations, Germany is not only the largest trailer market in Europe, but also has enormous potential in the construction and agricultural space,” Wielton’s Thomas Hajek, Vice-President of the Management Board, recently told Verkehrsrundschau – adding he was planning to sell up to 1,500 units a year in Germany once the Eastern European brand is fully established.

After taking over iconic French brand Fruehhauf in mid-2015, many an expert would agree that Hajek’s aim is more than just marketing talk. With record group sales of 11,500 units in 2015, the company is already going head-to-head with Kögel, Kässbohrer and Austria’s Schwarzmüller, making for a highly dynamic business environment in the heart of Europe.

While Krone will likely refrain from the third-place wrangle after merging with swap body specialist Brüggen to form a powerful €1.8 billion commercial vehicle division in January, the race is on for some of Europe’s trailer building community to prove who can keep up with Germany’s dynamic duo.

Construction equipment could play an important role in that context. While Schmitz Cargobull has again taken the lead in the category – selling more than 3,000 tipper semi-trailers in the first three quarters of 2015 alone – Kögel, Wielton and Schwarzmüller are closely observing the tipper market as well, followed by myriad small and medium-sized businesses like recently resurrected family business, Langendorf. 

The surge in tipper demand goes back to a new road construction law that came into effect on 1 January 2015 and made it mandatory for select equipment to be thermally insulated in order to prevent asphalt from cooling down while in transit. According to Germany’s Federal Ministry of Transport, the temperature of the cargo now has to be measured on site to verify the quality of the delivery – prompting transport businesses to update thousands of units in a short timeframe.

As the stipulations for national highways – currently focused on major roadworks with an asphalt layer exceeding 18,000m² – will be gradually expanded to include all road works by 2019, the growth potential for the segment is substantial and should lead to a suite of new developments to be unveiled at the IAA Commercial Vehicle Show in autumn.

As such, UK-based consultant Gary Beecroft of Clear International is optimistic that the German market is up for a more buoyant 2016 than many expect – and he has the data to prove it. “Overall, the market was up only one per cent in 2015, yet only the 2006-08 period had higher trailer registrations, so the demand level is still very healthy,” he explains, avoiding to mention the crisis Meinert sees looming on the horizon.

“I expect further growth of around 10 per cent in 2016 provided the current stock market jitters don’t adversely affect business confidence too much. German production levels are also in good shape as recovering markets such as Italy, Spain and record breaking demand in the UK are making up for lost exports to Russia, so there will be a lot of movement in Germany in the time to come.”

With key economic indicators in positive territory and enough movement locally to offset global turmoil, Beecroft says Germany may well experience a more positive IAA than in 2014, when the Crimea crisis and impending ‘Grexit’ overshadowed business confidence across the board. “The key,” he adds, “is to not let global developments affect local performance. There is a lot the individual company can change instead of simply giving in to a fate they can’t control.”

OEM Krone, for instance, has followed Schmitz Cargobull’s example to launch an integrated branding strategy where each part on a vehicle – from tyre to rear light – is factory-branded, thereby tying the customer closely to the business and controlling the entire value chain from end to end. In a move to untie the brand’s economic destiny from an increasingly volatile global business environment, rival Kögel is likely to follow suit quickly – putting Schwarzmüller and Wielton under pressure to also invest in a more comprehensive brand experience for their German clientele.

Equipment specialist BPW has gone down the same path and is now marketing itself as a ‘mobility partner’ that can provide transport businesses with support beyond the company’s core competency in axle and suspension design; and is likely to inspire many a company trying to ride the wave of positive data and get a foothold in the German market. 

In line with that, digital networking and telematics technology are likely to continue to own the public debate in Germany in 2016, both as a means to create new value for transport businesses and to open up new domestic market potential. After all, data doesn’t lie.
*January estimate by the Federal Statistical Office

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