North America Is Ready For Low-Cost Trucks, But Foreign Builders Face Challenges
July 30, 2010
According to Carmichael, such foreign manufacturers as Tata and Mahindra have an opportunity to penetrate the North American market, especially in the aftermath of the economic downturn. Many have come out of the recession self-employed, and financing has been tighter for small businesses. This is where these light- and medium-duty truck makers can step in with their lower cost options.
In addition to Tata and Mahindra, Carmichael says to look out for Foton in China, where the market is growing at almost 10 percent per year. UD Trucks is also bringing three new vehicles to market in North America.Factors Affecting Penetration
One thing that has been holding these manufacturers back from moving into North America is the "chicken tax," a 25 percent tax on light trucks coming into the U.S. Carmichael points out that this tax has kept prices somewhat higher than what they would be.
Ford gets around the tax by importing its Transit Connects from Turkey and stripping them down after arrival. The only other way around it, Carmichael says, is to set up assembly in North America, either through joint ventures or independent domestic production facilities.
Low-cost vehicles have also had a hard time penetrating the European and North American markets because of more stringent safety and emissions regulations, resulting in vehicle upcharges and more complex equipment. However, as safety and emissions requirements become harmonized across the globe, the market will shift in terms of what low cost really means, Carmichael said.
Sales of low-cost trucks also depend on the rate of freight growth. Carmichael says there's got to be an inflection point, and as freight grows, so will demand for these products.
Market penetration will also depend on how urbanization plays out. For example, as urbanization increases, we won't see as many large trucks in urban centers, and manufacturing operations will be moved outside of city cores. Businesses will likely opt for smaller delivery ranges, Carmichael says, which could influence the low-cost vehicle market.