Daimler to Help Drive Trucks in China

The mainland's need for commercial fleets is leading a surge in truck sales. Interest from foreign makers may improve quality

BUSINESS WEEK NEWS | Brian Bremner | CHINA - - It's no secret that China's rapidly expanding passenger car market has global automakers engaging in a historic build-out of plant capacity and new models for the mainland. Yet China's commercial truck market is also enjoying double-digit gains. That's why DaimlerChrysler (DCX), the world's biggest truck maker, on Nov. 30 agreed to spend $104 million to acquire a 24% stake of Beijing-based Beiqi Foton Motor.

Beiqi Foton is China's biggest light truck manufacturer, with about a 30% share of that market and 10% of the heavy truck segment, according to data compiled by Citigroup (C) analyst Charles Cheung based in Hong Kong. In October, truck sales in China cruised along at a 28.5% year-on-year clip, which was actually a slightly better performance than the 28% growth for sales in the mainland passenger car market.
Improved Emissions Needed

China's construction boom in anticipation of the 2008 Beijing Olympics, and double-digit economic growth, have attracted investment from overseas truck makers, including Volvo AB (VOLV). Yet, unlike the foreign brand-dominated passenger car market, overseas vehicle makers are still trying to make inroads in the truck market.

That said, the mixed quality of Chinese-made trucks—and the need for better engine technologies as Beijing demands improved emission performance—is creating interest in tie-ups with foreign players who have expertise in this segment. Daimler is the industry leader globally and actually earned more from turning out trucks and buses last year than from its marquee Mercedes division.
Three Million Mark

"It's a smart move" for Daimler, says Lubo Li, senior director for Business and Market Development at J.D. Power Asia Pacific, given the long-term growth dynamics of the mainland's truck market. Demand is being driven by Chinese corporate investment in "large commercial fleets, and then there are small businesses and private enterprises, and a large rural market as well."

China's truck and bus sales are expected to hit 3 million units this year, and the mainland likely will overtake Japan as the world's second biggest vehicle market by yearend or in early 2007, most analysts predict.

The just-completed 2006 Beijing Auto Show pulled in a record number of visitors. Foreign multinational auto companies showcased 10 car launches, while domestic players unveiled more than 90 new models, points out Citigroup's Cheung