Engineering their way through the worst of times01 May 2009
Journalists are sometimes accused of exaggerating bad news and paying scant attention to good-news stories. But such is the unprecedented scale of the financial and economic mayhem currently being visited on the motor industry in general and the commercial vehicle sector in particular that it would be hard for even the most zealous of reporters and sensationalist headline-writers to overstate the severity. Consider some of the latest news, emerging as this issue of Transport Engineer was going to press. General Motors, the world's second largest carmaker after being overtaken by Toyota, was still teetering on the edge of bankruptcy despite billions of dollars of US government aid and the ousting of top executives. Chrysler meanwhile was even closer to going bust, with eleventh-hour negotiations over an unlikely takeover by Fiat seemingly its last chance of survival. As for Ford, the third of the trio of giant US-based car-makers, it was feeling pleased with itself at having lost 'only' US$ 1.4 billion in the first quarter of this year.
In the UK, as Transport Engineer was going to press this month, the long-running misery of the 500-plus employees of LDV, the Birmingham-based van-maker, looked set to get even worse as chief executive Evgeniy Vereshchagin announced that 'deterioration in the position of the business has forced the directors to apply for administration.' LDV, owned by GAZ of Russia, has not built any vehicles this year and attempts to rescue the firm through a management buy-out, possible UK government aid, and a potential alliance with a Malaysian vehicle importer all seem to have failed, though Mr Vereshchagin emphasises that the application for administration will not be processed until 6 May, giving him and his fellow managers a tiny breathing space to 'secure funding for our plans.'
A stark indication of how badly heavy commercial manufacturers are being hit by the financial crisis came late last month from Volvo, second only to Daimler in the global number of trucks manufactured annually. In the first quarter of this year the Volvo group, including construction equipment and bus and coach divisions, made an operating loss of 4.5 billion Swedish kronor (£374 million), far worse than had been expected. 'The economic climate was very difficult in the group's markets in Europe, North America and Asia,' said Volvo group chief executive Leif Johansson, demonstrating his mastery of the art of understatement. 'Adjusted for currency movements, sales fell by more than 40 per cent, to SEK 56 billion in a historically weak quarter.' Having already shed around 20,000 jobs worldwide in what one newspaper describes as an 'implosion' of Volvo's markets, the group last month announced that a further 1,543 jobs were being cut in Sweden across the trucks, construction equipment, marine engine and powertrain divisions. At least as much pain is being felt by trailer-makers and component suppliers. Take the Bosch group of Germany, for example, the world's largest supplier of vehicle components. Bosch is heading for its first loss since 1945 as sales revenue collapses, by an expected 25 per cent this year.
Nowhere is the depth of the recession more evident than among Europe's trailer-makers. The biggest of these, Schmitz Cargobull, last month estimated that the number of orders for new trailers in Europe had plunged by no less than 94 per cent in the first quarter of this year compared with the same period in 2008. Not to be outdone in the understatement stakes by Volvo or anyone else, Schmitz describes trailer order levels at present in Europe as 'tending towards zero.' In its 2007/2008 financial year Schmitz Cargobull built more than 66,000 trailers. This year's annual production total is expected to be less than 10,000. Of course jobs are having to be shed and strenuous efforts made to cut costs right, left and centre. 'The financial position of the company is solid due to the permanent re-investment of profits as well as a strong own-equity base of 63 per cent,' says Schmitz Cargobull chief executive Ulrich Schümer. 'A loss in 2009/2010 would not threaten the substance of the company. However the company must carry out these drastic cuts to secure the future and long-term survival.'
Closer to home, what does all this mean for transport engineers, fleet managers and their suppliers in the UK road transport business?
We have been asking that question of a range of companies. The consensus that emerges from their answers centres on the gist of what Schmitz is focusing on: survival of the fittest. Just about everyone agrees that when the UK and global economies finally recover the entire road transport business will have been fundamentally reshaped. The top priority of practically everyone we contacted in the UK was simply to ensure that their particular organisation survived to be part of that restructure. And yes, we did find the odd good-news story here and there.
Ian Jones knows a thing or two about economic recessions and the long-and short-term effects they have on commercial vehicle suppliers and their customers. He was at Leyland Daf when it crashed into receivership in 1993 and was one of the survivors among the senior management team who went on to work for Daf under Paccar ownership. Since 2002 Mr Jones has been managing director of the commercial vehicles division of Mercedes-Benz UK. He recalls four recessions in his 37-year career to date in the commercial vehicle business. But he explains why this one is unlike any other. 'The UK commercial vehicle market is down (in the first quarter of 2009) by around 50 per cent, depending on which sector you analyse,' he says. 'On current trends, 2009 will be the smallest truck market in the last 100 years. In truth, none of the manufacturers really knows whether their market forecast has any real validity. There is no statistical base on which we can plan in these circumstances with any real accuracy. Of course the consequence of a rapidly-declining market is that we and our dealer network are carrying more stock than we would like, as it was impossible to turn off the production flow as quickly as customers turned off their demand. And that's left us with a bit of indigestion to deal with over the coming months. But we are certainly not in panic mode. Our total unsold stock represents less than three weeks' sales in normal market circumstances but at a time when everybody is trying to manage cash and working capital, tying money up in stock is something we would prefer to avoid. I have to say that in the 37 years I have been in the commercial vehicle business the way in which Mercedes-Benz has dealt with these challenges has made me extremely proud to work for this company. The Mercedes approach has been to stop production as quickly as possible, and to insist that only customer sold orders are built to ensure that the dealer stock problem does not increase. The financial strength of Mercedes-Benz enables it to make those difficult decisions to ensure that our dealer network comes through these challenging times and emerges as fit and healthy as possible. All manufacturers and all dealer networks are feeling the cold wind of the economic crisis that we face, and there is no doubt that some dealers and maybe even some manufacturers will not be here in years to come.'
Some pundits are surprised that so many truck dealers in the UK have managed to survive this far in a market where demand has collapsed so catastrophically. One exception is Commercial Motors, a Mercedes dealer based in south-west England, which went into receivership in March. But in Mr Jones's view this crash 'had nothing to do with the viability of the Mercedes-Benz franchise, or indeed the credit crunch, but was more a reflection on the fact that successful business needs successful management.' He points out that within two weeks of the crash, 'a new investor acquired all the existing facilities and assets, the vast majority of the staff, and has already opened additional service locations to strengthen our representation in the area.'
Shift of business emphasis
At Mercedes-Benz arch-rival MAN Truck & Bus UK the management team can take some comfort from looking back on their 2008 performance figures. Chief executive Des Evans spelled them out at a press conference last month: 5,530 new trucks sold, 2,065 used trucks, 1,399 new trucks delivered to the Ministry of Defence, and 251 new buses sold. This gave MAN a 12.2 per cent share of the UK truck market, 7.9 per cent of the bus market, and an annual turnover in the UK of £706 million. As head of MAN's 'region north and Iberia' division since the middle of last year, Geoff du Plessis is now Mr Evans' boss. Speaking at the same conference last month, Mr du Plessis said that for the entire MAN commercial vehicles group 2008 was 'the sixth record year in a row despite a large decrease in demand in the second half of the year' with 100,000 trucks and buses sold and a turnover of ?10.6 billion. 'If we could have copy-pasted 2008 on to 2009 it would have been a lot of fun,' quipped the 49-year-old mechanical engineer, managing director of the MAN Truck & Bus operation in his native South Africa before being promoted to the northern Europe post last year.
It is clear, however, that Mr du Plessis, Mr Evans and their colleagues at MAN have fully recognised that practically nothing from last year or indeed any previous year gives them a useful pointer on how best to manage their business right now. 'We're not going to do more and more of the same,' says Mr Evans. Already five per cent of the workforce at MAN's UK base in Swindon have been laid off. He reckons the number of new trucks (six tonnes-plus) registered in the UK this year could be 28,000 or fewer, down from 48,000 last year. Mr Evans is keen to maintain MAN's share of this market at around 11 per cent, but certainly not at any price. 'We are not going to discount heavily,' he says. 'We can't afford to sell to operators who can't afford our trucks.' This goes to the heart of MAN's strategy for coping with recession: finding fresh business opportunities by helping customers desperate to cut costs in the new age of austerity. Hence Mr Evans' vociferous calls for an essential user fuel rebate for truck operators (Transport Engineer February letters), hence the latest offer on three-year-old TGA tractive units (with a one-year repair-and-maintenance contract included at no extra cost), and hence the renewed emphasis on the potential for truck operators to cut costs deeply by using the latest MAN/Microlise telematics and fleet-management system. MAN Truck & Bus UK operations director Dave Cussans reckons that of the 132,000 tractive units in service in the UK, as many as 100,000 have no form of on-board fleet-management and telematics equipment. 'Enormous savings are immediately available by combining technology and training to improve the performance of today's professional driver,' says Mr Cussans. He is confident that by spending around £50 per month per vehicle on the MAN/Microlise systems, a typical tractive unit operator in the UK could save around £500 per month in fuel costs alone, even before benefits in reduced wear and tear and lower accident costs are taken into account.
Realigning costs to revenue
This shift of emphasis from largely futile efforts to grow product sales to support and services for agents and customers is paralleled at the Welwyn Garden City, Hertfordshire base of the top-selling tail-lift manufacturer in the UK, Ratcliff Palfinger. Paul Addis, promoted from deputy managing director to managing director in January 2008, confirms that new tail-lift sales volumes tend to follow truck registrations pretty closely, meaning a dramatic plunge in the first quarter of this year. How is Ratcliff Palfinger coping with this? 'By realigning costs to revenue,' says Mr Addis. 'The name of the game is survival.' This inevitably has meant redundancies, not only in the UK but throughout the Palfinger group. In his foreword to the 2008 Palfinger annual report, group chief executive Herbert Ortner (promoted from marketing director in June last year) outlines what is meant by the slogan used to set the tone of the annual report: 'Times are tough, but we are tougher.' Cut-backs in the workforce became unavoidable last autumn following 'an unbroken downward trend in the world economy.' But Mr Ortner and Mr Addis alike are at pains to emphasise how determined Palfinger is to be ready for the economic upturn, whenever it comes. 'We still have sufficient flexibility to respond quickly to a recovery of the market,' says Mr Ortner. 'The outlook for 2009 is uncertain, which makes it even more important to have a clear goal in sight. Our goal is to gain further market share. Of course we are going to cut back on costs wherever possible. However we plan to keep our core staff because in the end it is their skills and know-how that constitute a major success factor of Palfinger.'
The departure of sales director Tony Biggs last month to become a Gray & Adams area sales manager (Transport Engineer April) had nothing to do with workforce cut-backs, stresses Mr Addis. 'Tony is a great guy, we will miss him,' he says. 'He built a very good, experienced sales team. I've been out with them over the past couple of months to gather more information on the market and our customers at first hand.' Mr Addis has no plans at present to recruit a sales director to replace Mr Biggs. Instead he is taking on sales director responsibilities himself, seeing potential for the double benefit of cost-saving and gaining a clearer understanding of market requirements.
Like MAN's Dave Cussans, Mr Addis sees an opportunity created by the recession to get closer to his customers (including independent tail-lift service and parts agents as well as vehicle operators) by offering more extensive guidance and support than normal. 'Equipment still needs maintaining,' says Mr Addis. 'That's the business of our agents, all independent companies. We are trying to support them in the best ways we can, by offering more training, for example. We don't just want to sell tail-lifts and run away. We can offer advice, recommendations and further technical support.'
Mr Addis points out that since Palfinger's acquisition late in 2007 of MBB Liftsystems, Germany's biggest tail-lift manufacturer, and its gradual integration since then with Ratcliff's UK-based operation (acquired two years earlier) the range of tail-lifts available from Ratcliff Palfinger has broadened enormously. This made it more important than ever that truck dealers were well-informed when advising truck buyers about tail-lift specifications and capabilities. The Ratcliff and MBB ranges now include column and chassis-mounted lifts with lifting capacities from 350 to 3,000kg. 'Our tail-lifts have undergone a total review by our engineering department, headed by David Agg, and modifications made where necessary to ensure they comply with type-approval legislation,' says Mr Addis. 'The number of tail-lifts fitted to vehicles has steadily increased over the past 20 years as fleet managers endeavour to improve the efficiency of their operations and reduce the risk of injury caused by manual handling of goods. But careful consideration is needed before ordering a lift to make certain it is suitable for the task, to ensure the safety of the operator and pedestrians, and to prevent damage to the load.'
The harder vehicle operators have to struggle to make ends meet, the greater the risk surely of their skimping on maintenance and repair, and of this being reflected in the annual test failure statistics published by VOSA (Vehicle and Operator Services Agency) in its annual 'effectiveness report.' The latest of these reports, published in February and covering the twelve months to 31 March 2008, encouragingly reveals a trend in the opposite direction (Transport Engineer March), with the first-time pass rate for trucks and trailers on the rise. But who knows what will be revealed by the yet-to-be-published next report, covering a twelve-month period during which the financial crisis was really starting to bite hard and at least one traffic commissioner was publicly expressing her concerns about the standard of maintenance provided by some contractors? One fleet engineer who is keen to emphasise that there is potential for pass rates of even the most difficult-to-maintain trucks to be much higher than at present is Andrew Towns. Since last June Mr Towns has been fleet engineer at Faun Municipal Vehicles, the Anglesey-and South Yorkshire-based UK subsidiary of the big German manufacturer of refuse-collection vehicle bodywork. Why does a bodywork manufacturer need a fleet engineer? Because Faun also has an expanding contract maintenance operation in the UK and one that is by no means confined to its own bodywork and hydraulic equipment. The seven Faun 'service centres' in the UK are responsible for running repair-and-maintenance contracts on 400 vehicles, explains Mr Towns. A new contract in south-west England involving 63 more vehicles was in the process of being finalised as this issue of Transport Engineer went to press. Unsurprisingly, most of the vehicles repaired and maintained at Faun's UK workshops are refuse-collection trucks of one sort or another, including front-, side-, and rear-loaders. The very nature of the operation of trucks of this kind makes them notoriously difficult to maintain to high standards. So it would hardly be surprising if their VOSA annual test pass rate fell short of the national average spanning vehicles in all kinds of operations: 63.5 per cent for trucks and 87.6 per cent for trailers, according to the most recent VOSA 'effectiveness report'. Small wonder then that Mr Towns takes pride in the corresponding Faun R&M figures: a 92.4 per cent pass rate on average for all vehicles in the first three months of this year, 96.8 per cent in March. There is keen rivalry between Faun service centres on annual test pass rates. The workshop setting the pace at present is at Middlewich, Cheshire where for the best part of two years the annual test pass rate has been an astonishing 100 per cent. That would be a proud boast for any workshop but particularly for one responsible for a mixed fleet of MAN, Mercedes and Seddon Atkinson trucks, not all in the first flush of youth, with mainly front-end loading and kerbside-recycling refuse-collection bodywork. What is the secret of the Middlewich depot's success? Mr Towns and the Middlewich foreman Scott Howard say there is none. 'Keeping paperwork up to date is key,' says Mr Towns, and he does mean paperwork rather than computer files: there is no computer in sight in the Middlewich depot or workshop. 'Our bigger depots have PCs, but the smaller depots don't need them,' he explains. This should not be seen as evidence of any Luddite tendencies towards information technology on Faun's or Mr Towns' part, however. So keen is he to stay right up to speed with the company's annual test performance that he insists on being sent a text message to his mobile phone with the result, pass or fail, of every test.
Mr Howard, a former car MOT tester himself, is convinced that maintaining a good working relationship with the local VOSA testing station pays dividends, but both he and Mr Towns make it clear that they have no reluctance in challenging the decisions of VOSA testers when they are convinced they are wrong, on acceptable steering ball-joint play for example.
Mr Howard explains that the fixed-price terms of some of the contracts Faun runs means that parts certainly cannot just be replaced willy-nilly in order to get a vehicle through its annual test. If there is a secret to the Middlewich depot's remarkable track record in annual test pass rate it would seem to boil down to dedication to the task in hand and attention to detail. 'We don't distinguish between MOT inspections and others,' says Mr Towns. 'They are all the same: just inspections. And we consider a PRS (pass after rectification at the test station) to be the same as a fail and thus requiring an investigation.'
On the face of it, there would seem to be precious little in common between Cummins Diesel ReCon, the enginere manufacturing operation based in Cumbernauld, Scotland, and Kuehne & Nagel, the giant Swiss logistics group with seafreight, airfreight, road-and-rail logistics, and contract logistics operations around the globe. But if Ian Jones at Mercedes-Benz UK is ever looking for case studies to back up one of his favourite business maxims, about good managers being like teabags -only showing their true strength when thrown into hot water -then these two businesses would take some beating.
With 54,000 employees at 850 locations in around 100 countries, the Kuehne & Nagel group is bound to have been hit hard by the global financial crisis. Or so you would think. Yet there is powerful evidence in the group's 2008 full-year results and those for the first quarter of this year that even in these most difficult of times it is possible to run highly-successful transport businesses. The group's turnover grew in 2008 by three per cent to CHF 21.6 billion (£12.8 billion) and net profit grew by 9.1 per cent to CHF 585 million (£347 million). Turnover and profit fell in the first quarter of this year, which is hardly surprising, but only by 19 per cent and 17 per cent respectively. 'The solid performance in the first quarter confirms the efficiency of the measures we have taken at an early stage and implemented on a world wide scale to adapt our enterprise to today's economic environment,' says Kuehne & Nagel International chief executive Reinhard Lange. 'Since it remains impossible to predict by when the global economy will recover, we will adhere to our dual strategy of rigorous cost control with a commitment to market share expansion.'
In January Tim Scharwath succeeded Peter Ulber as chief executive of Kuehne & Nagel's north west Europe division, with around 12,000 employees at 100 locations in Denmark, Ireland, Finland, Norway, Sweden and the UK. Mr Scharwath is an enthusiastic advocate of the 'dual strategy' response to the economic crisis, meaning 'expanding market share by investing in sales while stringently managing costs.' After a 16-year career to date with Kuehne & Nagel, Mr Scharwath describes it as 'historically a cost-conscious company, we even used to re-use envelopes.' But now he says that 'the culture of cost awareness is stronger than I've ever seen.
All this is sure to strike a chord with a Clarence Carr, plant manager at the Cummins Diesel ReCon UK engine remanufacturing plant at Cumbernauld, Scotland. Mr Carr, who ran a Cummins engine manufacturing plant in his native Tennessee before moving to the UK last year, describes the Cumbernauld operation as 'the best-kept secret in Cummins.' But the benefits of the remanufactured engines it turns out are no secret to many operators of buses, coaches and trucks in the UK. And the recession seems to be encouraging a growing number of operators to conclude that the economics of a remanufactured engine, costing typically from Cummins around 20 per cent less than a new one, can make a lot of sense. The Cumbernauld plant remanufactures around 1,200 engines a year and all the signs point to that number growing this year. 'We haven't had a downturn,' says Mr Carr.
Mark Goundry is automotive business general manager at Cummins UK. 'Due to the long vehicle life expectancy of buses and coaches, our remanufactured products offer the best value to operators in performance, reliability and life-cycle costs,' he says. 'Every one of our engines is completely remanufactured to the same specification as a new Cummins engine, incorporating the latest product design improvements. Every ReCon engine is backed by the same two-year base warranty as a new engine, which can be extended by up to a total of five years or 600,000km, depending on engine model. Customers can use our products with confidence, which is particularly important during challenging economic conditions.'
This material is protected by Findlay Media copyright
See Terms and Conditions.
One-off usage is permitted but bulk copying is not.
For multiple copies
contact the sales team.