What lies ahead for UD Trucks?

What lies ahead for UD Trucks?
Published: 8 February 2020 - 9 p.m.
By: Dennis Daniel

Ever since the Volvo Group announced its intent to transfer ownership of its subsidiary UD Trucks to Isuzu Motors for $2.3 billion as part of a future alliance between the two companies, market analysts have been quick to speculate on how Volvo could benefit from the sale of what they call a “low-margin” or “struggling” business unit.

Granted, the UD Trucks business had a minimal impact on the Volvo Group’s operating income in 2018, and its sale could increase Volvo’s operating income by approximately $200 million, but the divestiture should not be seen as merely a way to raise cash for Volvo’s growth; instead, it reflects the changing landscape of the global automotive industry which is at the cusp of a major transformation toward alternative fuels (electricity, natural gas, and hydrogen), autonomy and connectivity.

No manufacturer alone has the resources or competencies to go to market with the technological advancements required for future mobility. Therefore, strategic alliances are becoming necessary and more common than ever before. For example, the BMW Group and Daimler, competitors for more than 100 years, have created a $1.1-billion joint venture for urban mobility solutions. Similarly, Ford Motor Company and Volkswagen have created an alliance to develop commercial vans and medium-sized pickups for global markets.

Such alliances are not limited to one or two companies. Toyota has created alliances with Japanese competitors such as Isuzu, Mazda, Subaru and Suzuki. In the world of trucks, Toyota and Kenworth are collaborating to develop hydrogen fuel cell electric vehicles for the US market; Isuzu has partnered with Honda to undertake joint research on fuel cell heavy-duty trucks; and Iveco and Nikola are collaborating to develop electric trucks for Europe.

According to a statement issued by the Volvo Group to PMV Middle East, the Volvo Group and Isuzu Motors share the same view of the challenges and opportunities in the commercial vehicle industry for both well-known technologies and new technologies such as electrification, automation and connectivity. Both parties acknowledge the need for working with strong partners to secure competence, knowledge and sufficient volume base to manage the transformation of our industry. The transformation will require large investments in both well-known and new technologies.

The recently introduced UD truck models have leveraged the Volvo Group CAST system (Common Architecture and Shared Technologies) as far as possible. However, due to the uniqueness in the Japanese truck segment and its vehicle architecture, opportunities for UD Trucks to further extract synergies with the Volvo Group are limited. For Volvo and UD Trucks to secure long term success in the Japanese truck segment, the cooperation with Isuzu offers a significant higher combined volume base and economies of scale, both in well-known and new technologies.

There’s another immediate concern for the Volvo Group: the global demand for new trucks is declining for all its brands. Volvo’s Q3 2019 financial results indicated that the total truck net order intake in Q3 2019 decreased by 45% to 35,726 vehicles while deliveries decreased by 1% to 52,357 vehicles, compared to Q3 2018.

“We are facing a period of tougher market conditions. With the current uncertainty about the future economic development in several parts of the world, customers are holding back on investments,” says Martin Lundstedt, president and CEO, Volvo Group.

While the order intake of heavy- and medium-duty trucks decreased in Europe, North America and South America, the order intake in Asia increased by 4% to 6,353 vehicles, primarily driven by the Middle East, while deliveries declined by 4% to 7,319 vehicles.

The global net order intake of Volvo Trucks decreased by 51% to 19,823 vehicles in Q3 2019, compared to Q3 2018, and decreased by 37% to 72,186 vehicles in the first nine months of 2019, compared to the same period in 2018. The net order intake of Renault Trucks decreased by 34% to 7,901 vehicles in Q3 2019, compared to Q3 2018, and decreased by 27% to 32,329 vehicles in the first nine months of 2019, compared to the same period in 2018.

The decrease in net order intake was the least for UD Trucks: -8% to 4,453 vehicles in Q3 2019, compared to Q3 2018, and -8% to 14,369 vehicles in in the first nine months of 2019, compared to the same period in 2018.

With regard to vehicle deliveries in the first nine months of 2019 compared to the same period in 2018, deliveries of Volvo Trucks increased 5% to 98,497 vehicles; Renault Trucks, increased 5% to 40,220 vehicles; and UD Trucks, increased 3% to 15,057 vehicles.
During 2019, UD Trucks saw the highest order intake and deliveries of vehicles in Asia. In Japan, UD Trucks grew its heavy-duty truck market share to 17.7%.

A like-for-like comparison of these brands is not possible as UD Trucks is available in only 60 countries, mainly in Asia and Africa, a long way off from the global reach of Volvo Trucks (140+ countries) and Renault Trucks (100+ countries).

Nevertheless, UD Trucks has created a niche market that complements Volvo’s offering. UD Trucks is the only truck brand in the MEA region synonymous with the Japanese concept of ‘Gemba’, which describes the place where value is created, from the factory floor to dealerships to customer facilities. Following the principle of Gemba along with another Japanese concept called ‘Kaizen’ or continuous improvement, is what has made the likes of Toyota among the most sought-after brands worldwide.

By combining the best of two worlds – its heritage of Japanese craftsmanship and customer care and the Volvo Group’s global technology, after-sales know-how, and cost efficiency through local know-how – UD Trucks has gained the reputation as vehicles that “get the job done,” particularly in the Middle East and Africa where fleet owners have been highly price sensitive and selective with vehicle features due to tough economic conditions.

Irrespective of which company owns or manages UD Trucks in the future, the brand has made its mark in the Middle East and Africa. Here, we look at some of the reasons that make UD Trucks an emerging force in the region’s commercial vehicle industry.

A range of medium and heavy-duty trucks customised for the MEA markets

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UD Trucks made a splash in the MEA when the company renewed its line-up for the region in 2016 by introducing the Quester range of heavy-duty trucks for construction, distribution and long-haul transportation. The Quester was the first truck developed by UD Trucks outside of Japan specifically for growth markets. This was followed by the introduction of the Croner medium-duty truck in 2017 and the Quester heavy-duty construction truck in 2018. In 2019, the company introduced the New Quester heavy-duty truck, equipped with advanced features such as easy safe controlled transmission (ESCOT) and UD Telematics, designed to deliver greater fuel efficiency, productivity, driver efficiency and safety.

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Mourad Hedna, president of UD Trucks, Middle East, East, and North Africa.

Mourad Hedna, president of UD Trucks, Middle East, East, and North Africa (MEENA), says: “Conditions in the Middle East are tough, with its varied terrain, high temperatures and payloads. Taking this into consideration, all new UD Trucks models are designed, sourced, manufactured and priced specifically for customers in the region. The Quester range was developed over six years starting from 2007, and the models were tested in real conditions for over a year in the Middle East to ensure they could withstand the harsh conditions in the region. The New Quester, which delivers 10% more fuel efficiency compared to previous models, was developed to minimise the operating costs related to fuel prices.”

Cracking markets dominated by the ‘seven sisters’

The MEA markets have been dominated by European truck manufacturers or what the industry refers to as the ‘seven sisters’ - Mercedes-Benz, Volvo, Renault, Iveco, MAN, Scania, and DAF.

UD Trucks has managed to penetrate this European stronghold as the first Japanese manufacturer to offer a complete range of heavy-duty trucks for construction; for example, an 8x4 configuration of 12m3 mixer trucks. The company reported growth in truck sales and market share in 2019, particularly in waste management and construction. In the UAE and Oman, sales were up almost 10% year-on-year.
Some of the major deals signed by UD Trucks in 2019 include 118 units of the Quester and Croner trucks delivered to UAE-based waste management services company Lavajet to serve Tadweer, Abu Dhabi Municipality’s waste management centre; 91 units of the Quester and Croner trucks delivered to Kuwait-based Abdul Hameed Salem Sons and 15 units of the Quester delivered to Kuwait-based Twaik. The Kuwait deals enabled UD Trucks to treble its truck deliveries in 2019, compared to the previous year.

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Waste management: UD Trucks delivered 118 units of the Quester and Croner trucks to Lavajet in 2019.

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Construction: UD Trucks delivered 20 units of the New Quester 12m3 mixer trucks to Oryxmix in 2019.

In the UAE construction sector, UD Trucks delivered 20 units of the New Quester 8x4 12m3 mixer trucks to Oryxmix; 6 units of the Quester 6X4 40T model to Trojan General Contacting; 3 units of the Quester 6X4 tractor and 1 unit of the Quester 40T models to Fujairah National Concrete Company; and 6 units of the Croner PKE to Western Bainoona.

“Despite challenging market conditions, we have achieved sustained growth since 2017. The highlight of 2019 was our market entry into segments dominated previously by European manufacturers. We established ourselves as a major player in the waste management and construction sectors with large orders in the UAE and Kuwait. In Oman, we continued our dominance in the medium-duty segment, but lagged in the heavy-duty segment. In Bahrain, we maintained our market share leadership at over 25%,” says Hedna.

Strong local partnerships

2019 was a transition year for UD Trucks in Saudi Arabia as the manufacturer decided to terminate its agreement with Rolaco Trading and Contracting Group and appointed Zahid Tractor as the new exclusive importer and distributor of UD Trucks in the country.

The partnership with Zahid Tractor is a natural transition for UD Trucks as the Saudi-based distributor already serves as the importer for Volvo Trucks and Renault Trucks and has a network of 26 branches in the country.

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(L – R) Takamitsu Sakamaki, president, UD Trucks; Mourad Hedna, president, UD Trucks MEENA; Mohamed W. Zahid, director, commercial vehicles division, Zahid Tractor; Jacques Michel, senior vice president-international sales, UD Trucks; and Nasser J. Bayram, group president-transport, Zahid Group.

Hedna elaborates on the new partnership: “Historically, our partners took a trading approach to market and sell UD vehicles. We want the mindset to shift toward the customer. Saudi Arabia is among our biggest growth markets. We required a partner that could fulfil the highest expectations for service and support in line with our ambitions for this market. We audited several dealers in Saudi Arabia before finalising Zahid Tractor as our preferred partner, and Zahid was more than welcoming to add the UD brand to its strong portfolio of commercial vehicles. During the initial phase of this new partnership, our principal objective will be to achieve the highest levels of customer satisfaction whilst ensuring that customers do not experience any delays during the transition.”

UD Trucks completes almost four decades of operation in Saudi Arabia and is active across a range of segments such as general cargo, FMCG, logistics, waste management, and construction. While it remains strong in the medium duty sector, the company is focused on increasing its market share in the heavy-duty sector.

Nasser J. Bayram, group president – transport, Zahid Group, comments: “We value this new opportunity and partnership with UD and. We are excited about the strategic potential it adds to our portfolio with its range of medium- and heavy-duty trucks. UD, a Volvo Group brand, is a natural fit to Zahid Tractor, a Volvo Group partner of 40 years. The same infrastructure, after-sales services, customers centre network we already have in place serving our Volvo Trucks, Renaults Trucks, and Volvo Bus customers will be available to UD Trucks customers. UD is also well positioned to join our ‘Made in Saudi Arabia’ production line of 20 years at our new factory, Arabian Vehicles Industries (AVI), in King Abdullah Economic City – Rabigh, in the near future. This new alignment only demonstrates the strength of our 40 years of partnership with the Volvo Group.”

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Numay Hussein Al Ghalib Alsharif, brand general manager, and Mohamed W. Zahid, director, commercial vehicles division, Zahid Tractor.

According to Numay Hussein Al Ghalib Alsharif, brand general manager, commercial vehicles division, Zahid Tractor, UD Trucks has the potential to become a market leader in Saudi Arabia within the next decade.

“The market may have different perceptions of the Volvo, Renault and UD brands, but there’s no denying the fact that all of them deliver the highest quality standards. UD Trucks enjoys unique positioning as a top Japanese brand, which comes with its own loyal customer base. When combined with the supply chain strengths of the Volvo Group, UD Trucks has the potential to become a leader in all its target markets,” says Alsharif.

Change has always been a part of UD’s business

UD Trucks is not new to brand evolution or change of ownership. Established in 1935 in Japan as Nihon Diesel Industries and undergoing name changes from Minsei Industries to Nissan Diesel, the company adopted the name UD Trucks in 2010, after the company’s Uniflow Diesel engine. The Volvo Group acquired the company in 2007.

The latest agreement between Volvo and Isuzu is a non-binding memorandum of understanding to form a strategic alliance that will include:

• Forming a technology partnership, which will leverage the parties’ complementary areas of expertise within both well-known and new technologies as well as to create a larger volume base to support necessary, forthcoming technology investments.
• Creating the best long-term conditions for a stronger heavy-duty truck business for UD Trucks and Isuzu Motors in Japan and across international markets.
• Exploring opportunities for even broader and deeper collaboration within the commercial vehicle business across geographical areas and product lines, such as light- and medium-duty trucks.

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Masanori Katayama, president and representative director, Isuzu Motors, and Martin Lundstedt, president and CEO, Volvo Group.

Masanori Katayama, president and representative director, Isuzu Motors, comments: “Isuzu Motors and the Volvo Group strongly believe in the business opportunities and synergy potential between the two Groups. We intend to derive the full value from each other's different specialties across product and geographical strongholds. Our collaboration will actively contribute to service improvements and strengthened customer satisfaction as well as to prepare ourselves for the forthcoming logistics revolution."

Martin Lundstedt, adds: “The Volvo Group and Isuzu Motors have a well-established relationship on medium-duty trucks in Japan based on mutual respect, shared values and win-win spirit. We see great potential to extend our cooperation within technology, sales and service as well as other areas going forward, for the benefit of our customers and business partners. Our UD Trucks colleagues have done a great job to improve performance in recent years and the alliance opens up a great opportunity to continue the successful journey.”

The enterprise value for the complete UD Trucks business is $2.3 billion (JPY 250 billion; SEK 22 billion) as of November 2019 and will be subject to the final scope of the business transferred and Isuzu Motor’s due diligence. All technology cooperation between the Volvo Group and Isuzu Motors will be managed through individual contracts.

As the memorandum of understanding is non-binding, the next steps will be finalizing the scope of the business to be transferred, due diligence by Isuzu Motors and negotiations of binding agreements. Signing of binding agreements is expected by mid-2020 and closing of the transaction is expected by the end of 2020. All potential transactions will be subject to regulatory and other approvals.

“Collaboration in the automotive industry is inevitable. It is important to understand the strategic approach of both the companies and their intent to create a global leader in commercial vehicles. All stakeholders in this alliance look at UD Trucks as an enabler of collaboration between Volvo and Isuzu. Joining forces with Isuzu doesn’t imply UD Trucks will detach itself from Volvo. UD Trucks currently enjoys Volvo Group’s assets including technology sharing and parts distribution. In the future, UD Trucks will benefit from the expertise of both the Volvo Group and Isuzu Motors,” says Hedna.

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