Q&A: Anders Nielsen, CEO, MAN Truck & Bus

Trucksales.com.au speaks with Anders Nielsen, head of Munich-based manufacturer, MAN Truck & Bus AG

The Chief Executive Officer of MAN Truck & Bus AG, Anders Nielsen, recently flew in to Australia from Germany with a number of senior MAN executives for a round of meetings with the recently appointed distributor of MAN products in Australia and New Zealand, Penske Commercial Vehicles.

Penske Commercial Vehicles, a part of the massive Penske Corporation, was created roughly nine months ago when Penske acquired the Australian and New Zealand distribution of MAN, Western Star and Dennis Eagle trucks from Transpacific Industries Group.

Trucksales.com.au spoke with Mr Nielsen – accompanied by Penske Commercial Vehicles President, Randall Seymore, and Managing Director, Paul Glavac – in Brisbane in late April, to hear about MAN’s current outlook on the global truck market and of its hopes for the Australian and New Zealand markets under Penske Commercial Vehicles.

MAN achieved a 2.4 per cent share of the heavy-duty truck market here in Australia last year but it’s a powerful force in Europe, where it’s the second biggest manufacturer by market share after Mercedes-Benz. In 2013 MAN Truck & Bus sold 76,268 vehicles, had over 34,000 employees, and recorded an operating profit of Euro 223 million ($A335 million).

Together with MAN Latin America it forms the Commercial Vehicles arm of MAN SE, which in turn is owned by Volkswagen Group – also the majority owner of Scania.

Swedish-born Mr Nielsen was appointed as CEO of MAN Truck & Bus AG on September 1, 2012, after completing a 25-year tenure with Scania that began in 1987.

Here’s what he had to say on the global outlook at MAN Truck & Bus…

Trucksales.com.au: What effect has Volkswagen’s ownership of MAN had on MAN SE and on its Truck & Bus division in particular?

Anders Nielsen: Volkswagen brings a very strong industrial ownership and with a lot of competence in its core business. It’s a huge company – it produced over nine million cars in 2013 – and there are large resources and benefits benefits that come with that.

It’s a very good owner and a very strong industrial owner, which is important in the truck business with its long product cycles and long development times. If you have a short-term owner then you get problems in the long term.

TS: MAN SE achieved a record level of revenue in 2011 with much of that success stemming from MAN Truck & Bus. This was achieved despite a harsh economic backdrop, so what have been the most challenging aspects in the three years since?

AN: We have to go back a little bit in the business cycle for trucks because if you look at it from a global viewpoint we have a 10-year cycle that has repeated itself twice now. I started in trucks in 1987 and in the early ’90s we had a dramatic dip in the business. Then we had a dramatic dip in the early 2000s and then the exception came – that was 2009.

In 2009 we had the dip created by the global financial crisis, and that really blew out the financing of the truck business. It was not for a lack of transport demand but a lot of customers lost their financing and that resulted in a huge drop in the market.

But after that we had a recovery in 2010 and 2011 – that was the end of the business cycle – and 2012/2013 has seen a normal downturn in the business cycle. From my perspective we are now in the low cycle and we’ll soon start picking up.

We see in Europe the replacement demand kicking in in 2014 and the start of 2015, so I think we’ll see a pick-up in the business cycle. But the commercial vehicles business is a very strong cyclical business, so you have to have the flexibility to meet these ups and downs.

TS: You’ve had a very long relationship with Scania. What is your view of Volkswagen’s on-going bid for complete control of the Swedish brand, and what benefits do you believe this would hold for MAN, Scania, and the Volkswagen Group as a whole?

AN: It’s beneficial for the corporation; the corporation so far has been limited by the legal restrictions around the minority shareholdings, but getting us under the same roof will provide us with a very sound setup.

The two companies [MAN Truck & Bus and Scania] will remain as separate brands and separate competitors in the market, but of course it will bring good opportunities for us to engage in the joint development of some components and find research and development synergies, as well as purchasing synergies.

However, it’s just as important to protect these top brands and, for MAN, to work with our customer base and make MAN competitive for our customers. MAN has a very loyal customer base and that customer base wants MAN to remain in the market.

TS: At the last MAN annual press conference you said you had identified ways of boosting MAN Truck & Bus’s operating profit to Euro 800 million ($A1.2 billion) in the medium term. That’s a big increase from the 2013 figure of around Euro 223 million ($A335 million) – what are the strategies you’ve employed to reach that objective?

AN: We say a long-term stable profitability of around a 10 per cent return on sales (ROS) should be our target. A 10 per cent ROS on an annual turnover of around Euro 8 billion ($A12 billion) gives you the profit of Euro 800 million in the low cycle – it would obviously be higher with 10 per cent in the high cycle.

Okay, so it’s easy to state the mathematics, but we have looked through our finances from the last years and we are looking through our structures to save costs. Here we see an opportunity to take Euro 200 million ($A300 million) out from our structures, from our SG&A (Selling, General & Administrative expenses).

Our purchasing performance is really getting a little bit more leverage now so we’re also working on product cost optimisation – to bring in options in the vehicles that the customer can choose. Today our standard specification [of MAN Truck & Bus products] is a little bit too high, so customers get these things whether they want them or not. That all adds to our material costs, so here we have identified another Euro 200 million ($A300 million) we can take out.

And the last Euro 200 million ($A300 million) is to come from what we call commercial performance – our commercial performance is all about our setup, how to build a network strategy to have the right presence in different countries, to have the right transfer price settings for those countries, the right incentive setups for those sales companies around the world, and also quality issues.

You can break it down into many details but if you want it in three big blocks its structural and SG&A, it’s purchasing performance, and it’s commercial performance.

TS: How is MAN Truck & Bus tracking against its projections for 2014? Do you still believe sales will remain largely unchanged from the levels experienced last year?

AN: So far I would say 2014 is coming along pretty much as planned. We had a Euro 6 launch in Europe on January 1, 2014, and that meant we had a very strong pre-buy effect in December last year – December was the second best month in the history of MAN.

Now those volumes are missing from the beginning of this year but we see the market is slowly picking up and we stand by our forecast.

TS: From MAN Truck & Bus’s global perspective, how important are the Australian and New Zealand markets in terms of sales volumes, product development and prospects for potential growth?

AN: One of the issues in all our discussions is that we are very dependent on Europe, where we see two-thirds of our total annual turnover. We see for the stability and the sustainability of our business that we need to be less dependent on Europe.

We need to diversify our market portfolio, so from that perspective Australia and New Zealand are very important markets to us. They are reasonably big markets, they are demanding markets, and I think we have a very good product fit for these markets – for sure we will develop products that are even better suited to the Australian market. Always you need to find markets where you have a good product fit.

TS: How do you feel about Penske Commercial Vehicles taking over the distribution of MAN Truck & Bus in Australia and New Zealand? Have you ever considered moving to a wholly owned subsidiary in this part of the world?

AN: That’s always a choice that you have to make – do you go in by yourself? We have stated that Australia is a very important market to us; now Penske has come in and bought our importer here.

I would say we have had some very good, very open discussions about the targets for Penske that very much match our targets, so because of that we say that we don’t need to go in by ourselves.

Penske is a well-known and very experienced international group; from its automotive business background it is highly professional and it has lot of knowledge from different markets. It is also highly experienced in rental leasing and it has all the other tools that are important in the commercial vehicles market, so from that perspective I think MAN Truck & Bus and Penske Commercial Vehicles are a good match. I can see we will work it out and have a good impact on the market here.

TS: You have long-established operations in emerging markets like Brazil, India, Russia and China. How have these markets performed in recent years and where do you believe you’ll see the greatest growth opportunities in the medium term?

AN: I’ll start with the good ones… Brazil has been working nicely for us; with the Volkswagen brand we are the market leader in Brazil but we are also present with MAN vehicles in the extra-heavy segment and here we see a very good product fit for the market.

Yes, Brazil has stagnated a bit in the last half year, but still I would say the potential for the commercial vehicles market there is very good.

We had a turnover of roughly 6000 vehicles in Russia last year so it’s also a very important market for us. Our products fit perfectly with Russia’s harsh conditions so our trucks are very much appreciated by our customers there. We have a good sales network there too, so Russia is performing quite well and contributing nicely.

As for India (and now we’re turning to the more negative side of the picture), over the last two years the market has gone down, the rupee has devaluated, and the prices are very low – the Indian market is a very tough market at the moment.

We have only a niche product in India, a tipper product, and with that we are doing okay, but we see difficulties with India; we are investigating how we can complement our product portfolio there over time, while addressing the lower pricing.

We have two-fold participation in China: we have over a 25 per cent stake in Sinotruck, and we also have also our own national sales company selling MAN products.

The premium segment in China is slowly growing; we saw the same development in Russia going back to 2000, 2001. With an increasing GDP per capita you also see growth in the premium truck segment. With more advanced logistics and better infrastructure comes demand for better products.

That was also the case in Russia – when the infrastructure improved there and the GDP per capita came up, we saw exactly the same development. So here, in China, we have quite a good forecast.

Going back to India, here is one of the problems in that market, because GDP per capita is still very low, the growth is not really there and the infrastructure is a huge issue.

TS: Randall [Randall Seymore, President of Penske Commercial Vehicles], we’re now nine months into the distribution of MAN products in Australia and New Zealand by Penske Commercial Vehicles. How has the transition progressed?

RS: We’re excited about re-entering the Australian market. When Penske Corporation owned Detroit Diesel we had the distributorship here back in the ’90s, so we’ve had some experience in this market. We also have a global relationship with Volkswagen with our car group so there are synergies there too, and with MAN we view the Australia market as offering a lot of opportunity.

From the point of view of the product, the safety of the product, and the fuel efficiency of the product as that becomes increasingly important to our customers, MAN trucks plays right into that demand, so we see quite an opportunity for MAN in Australia and in New Zealand.

TS: It’s been reported that Penske Commercial Vehicles looks on its truck operations in this part of the world as something that can provide leverage into other southeast Asian markets – can you comment on that?

RS: As I said, we’ve had some experience here and there’s clearly an ease of entry from a language and cultural viewpoint, but certainly from a medium and long-term standpoint for it to be a springboard into other parts of southeast Asia as those markets develop and mature a little bit, we’re exploring opportunities as they come. Certainly our day-to-day focus, however, is on growing the business in Australia and New Zealand.

Q&amp;A: Anders Nielsen, CEO, MAN Truck &amp; Bus

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Q&A: Anders Nielsen, CEO, MAN Truck & Bus