When the 36th Tokyo Motor Show kicks into gear Tuesday in Makuhari, Chiba Prefecture, struggling truck makers may be tempted to look behind-the-scenes for possible alliances.
Like many other industries in Japan, experts say, the domestic truck sector faces fierce competition with too many players and a shrinking pie.
“The market is too small to feed four makers,” said Tsuyoshi Mochimaru, a senior analyst at Daiwa Institute of Research. “Market size is likely to continue at around 80,000 units, even if demand recovers. No one can exclude the possibilities of consolidation among those manufacturers in the mid-term.”
The market, dominated by Hino Motors Ltd., Isuzu Motors Ltd., Mitsubishi Motors Corp. and Nissan Diesel Motor Co., has been on the decline since 1990, when the four companies sold more than 190,000 trucks with a load capacity of four tons or larger. Last year, volume plummeted to around 77,000.
The business environment for truck makers has soured as public works and corporate spending on transportation of goods plunge amid the protracted economic slump, according to Shinji Kitayama, a senior analyst at Shinko Securities Co.
Users have also hesitated to replace old trucks as the national and local governments renew plans to introduce stricter regulations on emissions of nitrogen oxide and particulate matter from diesel engines, he said.
In April, the national government hammered out new standards that will require diesel vehicles to reduce emissions of nitrogen oxide from present levels by 55 percent and diesel soot by 90 percent by the end of 2005.
“Truck makers have to win the technological development race to survive,” said Kenichi Ohno, deputy general manager at Hino’s public relations department. “So we need partners that can provide us with financial credibility.”
Although the makers have reinforced ties with other Japanese and foreign automakers, some experts say it is uncertain whether the partnerships will continue to remain strong.
Isuzu’s tie with U.S. based General Motors Corp., for example, is being threatened as GM eyes a reduction in its stake in Isuzu from 48.5 percent to 12 percent by the end of the year.
The change is part of Isuzu’s three-year restructuring plan through March 2005. GM will also provide Isuzu with about 100 billion yen to help it reduce debts and increase investment in Isuzu’s diesel engine business. Observers say GM’s move is aimed at shifting its focus from Isuzu’s trucks to its engines.
Hino has a capital alliance with Toyota Motor Corp. and Nissan Diesel maintains partnerships with Nissan Motor Co. and Renault SA of France.
But amid the gloomy market prospects, the incentives are lacking for Toyota and Nissan to maintain ties with the truck makers, argues Mochimaru of Daiwa Institute of Research.
Still, some truck makers harbor ambitious plans to survive via partnerships.
As a first step to expanding overseas, Hino formed a business alliance with Swedish truck manufacture Scania AB in March.
“It’s getting difficult to earn profitability in the Japanese market alone,” said Hino’s Ohno. “By developing advanced diesel engines, we can sell those engines in foreign countries.”
Nissan Diesel hopes to play a larger part in Nissan Motor’s operations in China as Nissan Motor announced last month it would set up a joint venture in spring with Chinese auto giant Dong Feng Automobile Co. to produce a full range of cars and commercial vehicles.
To benefit from the current alliance with German automaker DaimlerChrysler AG, MMC will spin off its truck business and set up Mitsubishi Fuso Truck and Bus Corp. in January. In March, it will sell 43 percent of the new firm’s shares, worth about 89 billion yen, to DaimlerChrysler and 15 percent to Mitsubishi group companies.
An MMC spokesman said that the partnership enables Mitsubishi Fuso to slash development and procurement costs while MMC could drastically reduce its debts and concentrate on its car business. The German auto giant, in return, stands to gain a stronger footing in Asia.
The atmosphere for realignment of the industry appears ripe.
Experts predict auto makers will utilize the upcoming Tokyo Motor Show, which is focused on trucks, as an opportunity to discuss alliances and demonstrate their latest environment-friendly technology.
Some speculate that Swedish Volvo Truck Corp., looking for a partner in the growing Asian market, may approach Nissan Diesel. Volvo may also consider an alliance with Hino and Isuzu, which are set integrate their bus businesses next year.
On the latest technology, Kitayama of Shinko Securities said, “The survival of truck makers depends on their engine businesses.”
The pressure on diesel engines to meet environmental specifications is high not only in Japan but also in Europe, the U.S. and China, Kitayama said, noting that advanced environmental technology for engines could lead truck makers to forge new alliances.
At the show, for example, Isuzu will display a diesel engine that runs on demethyl ether, a new type of clean fuel that promises to replace light oil. Hino, meanwhile, will unveil a diesel particulate filter that can reduce emissions by 95 percent.
MMC will demonstrate a 2.8-ton hybrid truck powered by a clean diesel engine and electric motor.