MAN v. Scania

New VW Truck Boss Must Put Sales into Overdrive

Source: DPA
VW's new truck boss will need to keep drivers walking away to the competition.
  • Why it matters

    Why it matters

    The former head of Daimler trucks must integrate VW’s Scania and MAN so they can compete effectively in fast-growing markets in the United States, China and India.

  • Facts

    Facts

    • MAN and Scania have found little common ground under the Volkswagen Group umbrella and have often been at cross purposes, particularly on price.
    • Mr. Renschler brings much-needed experience in the truck sector to Wolfsburg, where a majority of executives are automobile-oriented and have little understanding of how to market trucks.
    • Agreements between the Volkswagen board and the two truck companies guarantee that no plants will be closed, making Mr. Renschler’s task even more difficult.
  • Audio

    Audio

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Andreas Renschler is the man of the hour at Volkswagen. A former member of Daimler board of management, Mr. Renschler has been tasked with cleaning up the truck subsidiaries of Europe’s largest automaker – MAN in Munich and Scania in Södertälje, Sweden.

The two units generated €34.9 billion ($44.89 billion) in revenues last year, but are in need of a tune-up if they are to challenge Daimler’s dominance in buses, trucks and diesel-motor production. Mr. Renschler is being asked to integrate the two companies, which so far have found little common ground under the Volkswagen umbrella.

But the 56-year-old can’t begin this difficult task until February 2015 because of a non-compete clause with Daimler. Once he does get his hands on the wheel, however, observers expect him to steer the VW truck business to success. As head of truck and bus operations at Daimler, he built global leaders out of many brands.

Since he is not allowed to show up at Volkswagen, Mr. Renschler has been spending a lot of time on the golf course, no doubt contemplating the future of MAN and Scania. His accomplished tenure at Daimler has executives in Wolfsburg salivating over what he might be able to achieve for Volkswagen, where efforts to oust Daimler as the global market leader have failed.

It is not for lack of ambition. Just two years ago, MAN Chief Executive Officer Anders Neilsen said, “As a group, we have the potential to challenge Daimler as No. 1.” Neilsen failed to turn that potential into reality.

The problem Volkswagen faces is the lack of a core strategy for its truck subsidiaries, which is hardly surprising since the company’s executives are automobile-centric. For example, Volkswagen has tried to market MAN and Scania in the same way it sells cars, but that strategy, which has worked well for its Audi and Porsche brands, has had little impact in the truck industry. Truck buyers are less interested in brand names than in how economical the vehicle will be when put to use.

Meanwhile, a fierce rivalry between MAN and Scania has developed, which is hurting both companies. According to industry insiders, Scania sales representatives tried to snatch orders away from sister-company MAN with predatory pricing. With Scania catering to the upper end of the truck segment and MAN the lower end, the two companies had the potential to put the squeeze on Daimler trucks at both ends of the price spectrum. But, as an insider said, “Scania was undercutting Daimler with prices, and thus poaching MAN’s territory.” Both companies refused to comment.

With suffering margins under such price competition, the intra-company warfare is not in the best interests of Volkswagen. Leif Östling, a member of the board of management responsible for commercial vehicles, has set an operating-margin target of 8 percent to 10 percent, but the best the company has achieved is just 3 percent.

Volkswagen has tried to market MAN and Scania in the same way it sells cars, but that strategy, which has worked well for its Audi and Porsche brands, has had little impact in the truck industry.

There are no quick-fix solutions for improvement. MAN has also requested shorter working hours at some of its plants. This doesn’t bode well on the eve of the IAA Commercial Vehicles 2014 show that starts on Tuesday in Hanover – the leading international trade show for that vehicle segment.

Staff cutbacks are not an option for Mr. Renschler, as the Volkswagen management board and its chairman, Martin Winterkorn, have promised workers at Scania and MAN that no plants will close.

Mr. Renschler must quickly put a stop to the in-house competition. It is vital to the future of both companies that they develop motors and components together. So far, this strategy has worked to a limited degree, but there are signs things are moving in the right direction. The Germans and the Swedes are jointly purchasing navigation systems and window glass. In the future, transmissions built by Scania will be used in MAN vehicles. Volkswagen wants to save €850 million from synergies between the two companies, according to a company spokesperson.

This is a small sum considering the size of MAN and Scania, said an industry expert, who thinks better integration of the two companies should produce more in the way of €2 billion in savings per year.

According to industry insiders, Scania sales representatives tried to snatch orders away from its sister company MAN using predatory pricing.

If Volkswagen wants to overtake Daimler in the truck business. Mr. Renschler will have to make MAN and Scania into a global player. For now, sales of Volkswagen’s trucks have largely been limited to Europe. Scania has virtually no presence in the United States, China or India – the most important future markets –  while MAN at least has planted its flag in those countries.

In China, MAN acquired a one-fourth share in Hong Kong-based Sinotruck Limited, a subsidiary of China National Heavy Duty Truck Group, the third-largest truck manufacturer in the country, for €560 million in 2009. But three years later, MAN was forced to write off €190 million of that amount. Meanwhile, only one line of trucks produced as a joint venture has arrived on the market and its sales prospects remain unclear.

In India, the company’s involvement with Force Motors Ltd. has been an even larger disaster. The joint venture launched in 2006 has gobbled up millions of euros, but instead of projected annual sales of 24,000 trucks, MAN has sold only 4,000.

renschler_dailmer_vw_DPA
Mr. Renschler has time to play golf, shown (l) laughing with his soon-to-be-former boss, Dieter Zetsche. Source: DPA

 

It falls to Mr. Renschler to improve Volkswagen’s position in these vitally important countries. Simply exporting won’t work since the customers demand a service network, which means the company will have to make additional acquisitions since expansion is possible in China and India only when working with a domestic partner. In the United States, Volkswagen is exploring the acquisition of Navistar or Paccar.

A Volkswagen spokesperson stressed that acquisitions are not currently in the pipeline, although the company does not exclude that strategy in the future and with good reason.

“Without additional purchases, Volkswagen will not be able to get a foothold in these markets,” said an industry expert, who estimates the amount required in the lower-double-digit billions. But Volkswagen doesn’t have that kind of money stashed away. Additionally, company insiders say executives of the car subsidiaries are increasingly oppossed to any new purchases in the truck sector.

Mr. Renschler could try to get the needed money in a manner that would be considered unconventional for Volkswagen. The truck business could be bundled together for a stock sale with the proceeds used to finance expansion, but this strategy seems far-fetched given the reluctance of Ferdinand Piëch, chairman of Volkswagen’s supervisory board, to part with companies.

For now, Mr. Renschler has plenty of time on the golf course to contemplate strategies to convince Mr. Piëch. Perhaps, he’ll meet executives from Wolfsburg who can offer him some helpful hints on the green.

Markus Fasse and Martin Murphy are writers at Handelsblatt. Mr. Fasse covers the auto industry, while Mr. Murphy follows the steel industry. Contact these authors: fasse@handelsblatt.com and murphy@handelsblatt.com

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