|
Non-Automotive
Transportation Connector Market Update
By Jim Wedding, Bishop & Associates Inc.
The best news for the
non-automotive transportation connector (NAT) market is that 2009 is
fading quickly in the rearview mirror. The NAT connector market has
encountered back-to-back years of market contraction, suffering the
effects of the global recession along with all the other portions of the
global connector market. Guarded optimism is the watchword for 2010, as
the worldwide economies struggle to regain their footing and march
toward incremental growth and recovery. The NAT connector market
normally lags the demand of the other segments of the connector market.
Just as the technology sector seems to lead global connector demand, the
NAT market usually follows the uptick, or downturn, by two or three
quarters.
As noted in the
mid-2009 review, the recreational vehicle and power sports
market were the hardest hit, with a 50 percent year-over-year drop, as
consumers held on to most of their cash. Other segments of the NAT
connector market were also challenged in 2009, as heavy trucks and
buses, marine, rail, and aviation, and the farm and garden segments were
moribund. The marine/aviation markets remain flat (to down), due to the
long lead time of their end products. Heavy shipbuilding, although down
slightly in 2009, will suffer in 2010 and 2011, as their order books
continue to decline. Commercial aviation, other than Boeing and Airbus,
will finish this year down nearly 25 percent over last year. All in all,
we estimate the NAT connector market shrank by approximately 19 to 21
percent in 2009.
Heavy Trucks and Buses
 The
global market for heavy trucks, tour, transit, and school buses
continued to decline in 2009. Although demand was down in almost all
regions, Europe saw the most degradation of the market, followed by
North America. Japan’s downturn appears to have stabilized, and the
market in China is on an upward movement.
The recently awarded $54 million
grant from the U.S. Department of Energy for the development of a
highly-efficient Class 8 SuperTruck to Cummins Inc., who will partner
with Peterbilt, should provide a boost to the North American
market.
Improved market conditions will also support a slight
recovery in 2010.
In China, according to ACT Research, the greatest demand has been for
heavy- and medium-duty trucks, with third quarter sales up
significantly. “An increase of 96 percent over last year’s third quarter
and a 63 percent increase from the second quarter of 2009,” heavy-duty
trucks showed the strongest growth. According to Frost & Sullivan, “the
growth is being driven by several factors, including new roadway weight
limit rules, increased fuel taxes, and the harmonization of China’s
truck emission statues, with those of the U.S. and Europe.”
Japanese 2009 truck production, including light trucks, was down more
than 40 percent for the first three quarters, and the forecast for the
full year will stay at that level. Standard and heavy truck build is
forecast at 190,000 units, down approximately 15 percent from 2008. The
same downward trend is seen for the production of both small and large
buses. We are beginning to see a slight increase in heavy truck and bus
production levels, as customer demand slowly returns to 2007 levels.
Daimler Benz’s heavy truck and bus operations through Q3 were down
across the globe. Revenue from heavy truck sales was down 40 percent, to
4.4 billion euros, from 7.3 billion euros in 2007. Unit sales were down
46 percent, year over year, at 66,071 units, down from 122,687 in 2008.
Bus revenue was down 15 percent, at just over one billion euros, down
from 1.2 billion euros in 2008. The Western European market, excluding
Germany, was down 58 percent in unit sales. Daimler’s ROW markets are
off 29 percent in the bus sector. Buses, although still off their normal
demand pattern, are seemingly making a recovery.
Swedish global supplier Volvo’s Q3 year-to-date financial results were
down 32 percent over 2008. The European heavy truck market continues to
be very weak. Truck deliveries through Q3 were 89,513 units, down 53
percent from 191,623 shipped in the same period in 2008. European
shipments were off 65 percent, and Asian sales were down 41 percent.
Daimler’s third quarter truck deliveries were seven percent less than in
their second quarter this year. Bus demand continued to weaken in Europe
and the rest of the world, with the exception of Asia. The coach bus
segment has shown the largest decline in all regions. Volvo’s orders in
Q3 have begun to show a slight improvement in Asia and South America.
Europe and North America continue to be the largest problem areas.
Heavy Construction, Farm and Garden
 The
heavy construction and farm and garden markets continue their downturn
trend across all regions. Although the overall market is forecasted to
remain weak, once again, the greatest losers are anticipated to be in
Europe and North America. China remains a bright spot, and could be up
near 45 percent. If the U.S. stimulus money designated to repair the
antiquated infrastructure in the U.S. reaches public projects, North
America could also receive a big boast in 2010.
In spite of a less-than-stellar 2009 sales performance, Volvo
Construction Equipment has started 2010 off with a bang. Focusing on
China and the Asia Pacific region, Volvo has seen a considerable
improvement over January 2009 sales. The sale of 102 crawler excavators
during a one-day customer event in January was a boost to Volvo and
their 2010 sales. Besides focusing on these regions, Volvo is also
expanding their telematic system to encompass all large machines, with a
free three-year CareTrack subscription. This state-of-the-art telematic
system is designed to provide remote machine monitoring, that will
optimize the machine’s productivity and reduce downtime, and will
increase the connector content on each machine.
Deere & Co.’s 2009 sales in the heavy construction and farm and garden
segment were down 19 percent. Deere’s ability to react quickly as the
market fluctuated helped them through 2009. They were able to maintain
or expand their workspace capacity at tractor factories in the United
States, Brazil, and China, and at a U.S. combine-harvester plant. They
also added a new manufacturing and parts complex in Russia. Deere
introduced a variety of new products in 2009 that included additional
telematic systems and operator convenience and comfort options, which
increased the connector content per machine.
Komatsu’s fiscal year reports, from April 2009 to March 2010, reflect a
decrease in sales over the previous year, but third quarter sales were
up significantly over first and second quarter sales. Like Volvo,
Komatsu has seen steady improvement in the Chinese market and the Asia
Pacific region, primarily Indonesia and India. As the manufacturer of
the world’s first hybrid hydraulic excavator, that offers an average
reduction of 25 percent in fuel consumption and carbon dioxide emissions, Komatsu used 2009 to expand the manufacturing capacity
of their plant in Shonan, Japan. Many of the key components used in
their hybrid hydraulic excavators are built in this plant, and they
anticipate increased demand as the product is introduced in China, North
America, and Europe.
 Caterpillar, like the other major manufacturers in this market segment,
ended the year with substantially reduced profits due to significantly
lower sales volume. Based on reduced dealer’s inventories of new
machines, an improvement in sales of aftermarket service parts, and an
increased end-user demand in 2010, they are forecasting 2010 sales to
increase 10 to 25 percent over 2009. Caterpillar has “seen a marked
increase in demand for mining equipment―a result of continued strong
commodity prices and growing confidence in economic recovery.”
Despite declining sales volumes, many manufacturers of heavy equipment
recently released a number of new products, all with increased
electronic content. Examples of these include Hyundai’s recently
released 21t wheel excavator, the Robex 210W—equipped with an
eco-friendly tier-three engine, which reduces carbon dioxide emissions,
features fuel-saving auto-cruise, and a safety-conscious rear camera.
The new model also features digital media broadcasting (DMB) and
Caterpillar’s 973D track loader that offers position-sensing electronics
to lift and tilt cylinders in the hydraulic system.
Aviation
Boeing
Boeing’s commercial airplane business in Q3 suffered a net loss of $1.56
billion, due primarily to the 787 and 747-8 programs. The 787 program is
over two years late and Boeing is taking a $3.5 billion charge due to
related problems. It is well known that the global aerospace industry
normally lags the broader economies, so the industry is headed for a
sharp correction in the next two years. Boeing’s customers deferred
about 215 jets during the first nine months, and Boeing’s backlog has
shrunk by nine
percent.
Boeing currently holds orders for 840 planes valued at $150 billion.
Year-to-date financial data shows Boeing’s revenue to be up by four
percent,
to $50 billion for all operations. This year Boeing’s
Commercial Aviation Group will deliver an estimated 480 to 485 planes
valued at about $35 billion. The outlook for 2010 and 2011 is down, as
the aviation industry feels the effect of global cutbacks in business
and pleasure travel.
EADS/Airbus
Airbus Commercial revenue through Q3 was down four
percent
over 2008, at 19.1 billion euros. Commercial Aviation
bookings dropped nine
percent
in units to 3,480, and the backlog was down 6.5
percent
in euros. Their Europcopter business segment saw
revenues increase by nine
percent,
but their year-to-date bookings are down 18
percent,
reflecting a number of cancellations by their customers.
Airbus’s outlook for 2010 is cautious and mirrors the statements made by
Boeing. They are looking at a very challenging environment, as the
global slowdown reaches them.
The General Aviation Manufacturers Association (GAMA), a group that
follows the market for smaller business jets, turboprops, and
piston-driven airplanes, released their industry’s third quarter
shipment and billings figures, and the production continues to decline.
Total general aviation worldwide airplane shipments fell 46.8
percent,
from 2,982 units in 2008 to 1,587 units this year. Industry billings are
down 23.5 percent, to a total of $13.8 billion. These numbers reflect a
difficult business cycle and tight credit.
In 2010 and 2011, the large airframe manufacturers will experience what
has happened in 2009 in the general aviation market. Falling orders and
cancellations in 2009 don’t bode well for 2010 and beyond. As noted
previously, we expect this sector’s usage of connectors to drop
significantly in the next two years.
Marine
Brunswick continued to see a severe deterioration in the marine engine
and boating segments of their business. Discounts and low order volume
combined to drive results down. Year-to-date revenues were down 45
percent at $2.1 billion, and the year-to-date loss was reported at $462
million. The boating sector was off 62 percent from 2008, and the marine
engine business was down 29 percent. Cost cutting and restructuring
attempted to ameliorate the falling demand.
 The cruise ship production business shows basically no change from the
Q209 forecast. The backlog still stands at approximately 30 units.
Fifteen units are scheduled for delivery in 2010 and 2011. It remains to
be seen if these numbers will hold up, and the cruise industry continues
to struggle with an overall drop in cruise bookings.
Through the first half of the year, the global shipbuilding industry
vessel completions are off 40
percent, at 40 million gross tons vs. a 2008
completion number of 67.7 million gross tons. New orders for 2009 show a
severe drop from 2008 bookings of 86.4 million gross tons, to a paltry
order level of 5.7 million gross tons, or a decline of 91 percent.
It is expected that 2009 will close with the industry at the above
levels. As expected, global shipbuilding is estimated to be down 40 to
50 percent over the next two to three
years.
Rail
Locomotives
New orders are big news in the rail industry. The announcement that GE’s
Transportation Unit has signed an agreement with Brazil’s Cosan SA
Industria & Comercio to deliver 50 new AC44i locomotives starting this
year is a welcome event. Cosan is a major grower and processor of sugar
cane and one of the largest ethanol producers in the world. Cosan will
use the new locomotives to haul raw sugar to the processing plants or to
ports. The Model AC44i will be built by GE Transportation South America.
The engines will be supplied by GE Transportation’s Grove City, Penn.,
plant in North America.
Rail Cars
An ugly indication of the problems in the rail car business is that GER
(GE Railcar Service Corp.) and Greenbrier Companies have reduced their
agreement for delivery of 12,000 rail cars to 6,000, essentially halving
the original contract and extending the contract by 27 months.
Greenbrier Companies is estimated to hold about 40 percent of the
backlog in North America. Overall rail car production is estimated to be
down more than 50 percent in 2009, coming in at approximately 25,000
units. The industry sees a drop in the demand, with 14,750 units
estimated for build in 2010, and 27,500 in 2011. The average build for
the last five years has been in the 57,000 unit range, and experts do
not see it reaching that level of demand until 2014.
RVs and Power Sports
Recreational Vehicles
The North American recreational vehicle market has continued to struggle
in 2009 as the recession hit the baby boomers and new retirees. The
demand for all modes of travel vehicles has been down since 2007. The
2009 industry shipments are forecasted to be down by 35 percent over
2008, with the biggest drop off in camper trailers, down 60 percent, and
Class A motor homes, down 63 percent. A glimmer of hope has appeared in
the last few months, as inventories are at their lowest levels and the
manufacturers are beginning work callbacks.
 Snowmobiles, ATV, Personal Watercraft
In profiling connector demand for 2010 and beyond, we think taking a
manufacturer that competes in most of these product categories will
provide a good benchmark going forward. Polaris Inc., based in Medina,
Minn., produces products in the areas above and also has a small
motorcycle presence with their Victory motorcycles. Off-road vehicles
account for 73 percent of Polaris’ revenue. Motorcycle production
accounts for four percent, or about $25 million, followed by $16 million
of snowmobile production. Parts and accessories and garments account for
$21 million. One of the latest products is the “Breeze,” an electric
vehicle with a top speed of 20 mph, targeted at the Sunbelt retirees.
This is a departure from a gas-driven engine and an area where the
company believes they can be one of the first to market.
In 2009, the Polaris’ ATV market has been off in the area of 25 percent
and the motorcycle market has been hit the hardest, with a 52 percent
drop. The snowmobile market is very soft and will be that way for the
near future. Analysts do not expect any of the above markets to pick up
soon, as these products are driven by discretionary spending in most
cases.
Motorcycles
The international motorcycle market remains weak. Motorcycle
manufacturers have experienced the worst depression since the 1930s.
World street bike sales have slipped over 30
percent, and all manufacturers, with the
exception of Triumph Motorcycles, have had down years. Based in the
U.K., Triumph has “opened 39 new stores and increased their market share
in every country in which they operate, at the expense of other
motorcycle manufacturers.”
Although BMW reported that sales were down in all European markets, Todd
Andersen, marketing manager, BMW Motorrad U.S.A., said they “expect
significant sales growth in 2010.” BMW feels much of this increase in
sales will be “on the strength of the launch of the production version
of the S 1000 RR Superbike, the most powerful and sophisticated sport
bike ever produced. Our dealers have confirmed deposits on more than 600
bikes, and deliveries to customer will begin January 26.”
 Harley Davidson reported sales decline of about 18
percent for their year-to-date Q3 results.
The biggest drop is in the over 500cc Cruiser line. In the U.S.,
Honda of South Carolina suspended the manufacture of personal watercraft
to concentrate on ATVs.
Japanese manufacturers report the same downturn, with year-to-date sales
down 27.1
percent, exports down 41.3 percent,
and production units down 44.1 percent.
The largest drop in production was at Suzuki, as they trimmed production
by over 50 percent vs. 2008.
Yamaha Motors, one of the largest players in this arena, posted a
substantial year-to-date revenue drop as their motorcycle business was
down 26.6 percent, and their marine business was off 40.3 percent.
2010 Non-Automotive Transportation Connector
Forecast
The outlook for 2010 is optimistic in the non-automotive transportation
connector arena, as global economic markets and financial institutions
began to stabilize in late 2009. Very little of the U.S. $787 billion
stimulus package has yet to “trickle” down to the heavy construction
industries or the consumer. “Shovel-ready projects” really weren’t quite
shovel-ready, nor were the Congress or the banks willing to release
funding. Tight credit has deferred most consumer spending in the U.S.
However, the flow of new construction projects should increase in 2010
in the U.S., and definitely in China and some of the Asian Pacific
countries.
China’s stimulus package has created numerous new public works projects,
and the demand for the corresponding heavy equipment is giving some hope
to Caterpillar, Hitachi, Volvo, Deere, and others. The Chinese consumer
has benefitted from the stimulus and is spending. As an aside, the
Chinese portion of General Motors automobiles has risen 67 percent in
2009.
The spillover from Chinese stimulus spending has been seen in a number
of other Asian countries. Major questions regarding the how and when the
U.S., Europe, China, Dubai, and other countries will cease their
emergency funding support without causing another global financial
crisis are certainly not resolved. Politically, both Japan and Brazil
will have presidential elections this year, and the U.S. remains mired
in a battle over healthcare and energy emissions. All of these external
factors will shape the markets in 2010. All is not gloom and doom, as we
expect a slight uptick in non-automotive transportation connectors in
the second half of 2010.
What’s Hot?
Despite the abysmal market conditions, the global manufacturers of NAT
vehicles continue to invest heavily in research and development. The
connector arena is not an exception. Innovations in fuel and demands for
cleaner emissions will mean technology will play a bigger role in this
arena. The road to recovery will be bumpy and slow, but inevitably
things will turn around, and the connector market will go along for the
ride.
|
