Hazard Warning Lights for Volvo, Scania and MAN.

Kenworth trucks announces job cuts.

The number two manufacturer of heavy trucks in the USA announced a 10% cut in employees at its Ohio plant last week. As I stated in Look beyond the noise, the potential for disappointment and production gluts was more than real. Following last years 70% increase in sales, expectations for a strong 2012 looked, to many, well founded. If the disappointing first quarter sales are not reversed, expect more substantial job cuts across the industry.

I believe European truck demand will shock the industry this year. The heavy segment saw (in March) its first year on year fall since the upturn began. Production has already been pared back to allow for a decline in 2012. I expect significant heavy job losses as it becomes clear demand will be far weaker. Why? Disposable income implosion. Demand throughout Europe will, in volume terms, fall throughout 2012. Disposable incomes are being squeezed from both sides. Higher taxation and real salary cuts on the one hand and erosion via inflation on the other. The most recent industrial/manufacturing output and sales data highlight the significant falls many industries are experiencing. I realise these were expected in the first quarter and most analysts have pencilled in a recovery in the second half. Somehow I just cant see that happening. Austerity is here to stay, at least for the next 3-5 years. In this benign economic environment the only way governments can reduce deficits is to tax more or spend less. Either way, disposable incomes fall. The economic peaks of yester year were achieved by the disposable incomes being greatly enhanced by the asset boom frenzy created by the Euro. The apparent elimination of risk in lending to poorly run, corrupt countries like Greece, Spain, Ireland and Italy reduced their borrowing costs to AAA levels. Of course they were going to spend! Now the rose tinted glasses have come off, reality has prevailed. It will be a long time before they positively affect consumption in Europe. In the mean time, the flow (volume) of goods throughout Europe will slow.

Daimler is number one in sales followed by Volvo, Man and Scania. Volvo has forecast a 9% reduction in European sales but a 20% increase in US sales. They have a very big margin of error on both, to the downside of course. I expect them to under-perform badly this year. The other players in the game are interesting. Scania is now effectively controlled by VW. MAN own 13% of the capital (result of failed take over) whilst VW own 45%. Last year VW gained a controlling stake in MAN thus combining the two into control (87% votes). It is clear VW wants to challenge Daimler’s global lead. It is only a matter of time before VW makes a bid for the rest of Scania. Scania has a reputation of high profitability and has excellent exposure to developing economies. It has one other very important factor. It is in the EU but outside the Euro. If the Euro core nations are forced (as I believe they will be) to break away from the weaker, debt laden, life support aided PIIGS, then production in Germany will become very expensive as the EuroMark becomes a global safe haven. The situation of VW, MAN and Scania reminds me of the ambitions of Deautsche Post who owned various shareholdings in the intermodal transport arena back in the late 1990`s. They saw the Internet shopping boom coming and put all those pieces together which included a full takeover of the Swedish transport group Bilspedition (BTL).

The UK is my next port of call. The next blog will highlight why I think the valiant efforts of George Osborne will not be able to avert the disastrous economic consequences resulting from the policies of Tony I Couldnotcare and Gordon Brafoon. The end is nigh for the UK.

Next will be back to shipping. An update of the AP Moeller Maersk chart will be interesting and a chat about why Japan has just announced a new low interest finance deal for anyone building ships in Japan. Once the worlds biggest builder and now on the verge of having no order book for 2014.

Remember, tranportation is the life blood of the world economy.

 

Tags:

Monday, April 16th, 2012 Euro, Shipping, UK

1 Comment to Hazard Warning Lights for Volvo, Scania and MAN.

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  2. John `Bernanke` Wayne Rides to the Rescue. Too Late?? | Finance Reaper on September 14th, 2012

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