The truck industry's green challenge - Headwind or competitive edge? Automotive

 
The truck industry's green challenge - Headwind or competitive edge? Automotive
Automotive

The truck industry’s green challenge
Headwind or competitive edge?
Automotive

The truck industry’s green challenge
Headwind or competitive edge?

                                pwc
The truck industry’s green challenge
Headwind or competitive edge?

Edited by PricewaterhouseCoopers

September 2008, 68 pages, 41 figures, softcover

All rights reserved. Reproduction, microfilming, as well as recording, storing and/or processing onto
electronic media are not permitted without the expressed consent of the editor.

Cover photo
G. Fischer/Schapowalow

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Nina Irmer, Digitale Gestaltung & Medienproduktion, Frankfurt am Main

Printing
Druckerei J. F. Niemeyer GmbH & Co. KG, Ostercappeln

Printed in Germany

© 2008 PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft
PricewaterhouseCoopers refers to the German firm PricewaterhouseCoopers AG
Wirtschaftsprüfungsgesellschaft and the other member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity.
The truck industry’s green challenge        Foreword
Headwind or competitive edge?

Foreword
The key note of the upcoming 2008 International Motor Show (IAA)
Commercial Vehicles in Hanover, Germany, “Commercial vehicles are on
the move for everyone” is indeed a very accurate theme in the light of
increasing globalisation and recent records in global trade and transport
volumes. But what about the industry’s challenges on this ‘move’? Certainly
the globalising world economy is a key growth driver for the truck industry
and it is not incorrect to say that global economic conditions directly affect
the transportation and by association, the truck industry on a macro level.
Aside from these general economic issues, there are some critical
challenges for the truck manufacturing industry.

While public awareness around emissions, fuel consumption, and related
changes in consumer behaviour are key market drivers for car
manufacturers, the truck industry surprisingly has been able to keep out of
the public debate and treat this environmental issue more or less as a
regulatory burden with which they must comply in much the same way as
regulations for road safety, noise reduction, and others. For truck
manufacturers, transport efficiency still is the core factor from a commercial
point of view that drives customer purchasing decisions. Increasing
resource constraints, higher fuel prices, and stricter emission standards will
certainly have a negative effect on transport costs and thus efficiency, which
will in turn drive truck purchasing decisions accordingly.

As a sequel from analyzing “The framework and dynamics of the CO2
(r)evolution” for the car industry that was conducted in 2007, this study aims
to examine impacts of the increasingly important trend for truck
manufacturers to address eco-friendly solutions. Our results build upon
analyses of each major industry stakeholder’s parameters and focuses on
exploring different scenarios and their consequences, concluding in an
assessment of whether the truck industry’s green challenge is a ‘Headwind
or competitive edge’ for its players.

Our automotive experts of the Automotive Advisory practice as well as the
PwC Automotive Institute looked at this complex industry ‘network’ from
multiple angles to shape pathways for the truck industry. We cordially thank
the team namely Dr. Michael Borgmann, Jan Maser, Liang Cheng and
Stephan Huber as well as Nishal Chauhan, Calum MacRae, Emeric
Deramaux and Paul McCarthy for the production of this study as well any
valuable contributions, drawing upon our expertise in both areas – the truck
sector as well as market and technology assessments in the automotive
industry.

September 2008

Harald Kayser                    Felix Kuhnert         Bo Karlsson
Partner                          Partner               Partner
German Automotive                German Automotive     Commercial Vehicles
Leader                           Advisory Leader       Competence Center

                                                                             3
The truck industry’s green challenge                        Contents
    Headwind or competitive edge?

    Contents
    Foreword ........................................................................................................ 3

    Figures............................................................................................................ 6

    Abbreviations.................................................................................................. 8

    A Executive summary ................................................................................ 11

    B The truck industry and its underlying dynamics ..................................... 15

    1    Global truck market: Growth driver emerging markets .......................... 15

    2    Road transportation: Increasing demand............................................... 23

    3    Key challenge for the industry: Driving efficiency .................................. 24

    C The government: Value driver or driver’s worry? ................................... 27

    1    On the path to a cleaner environment.................................................... 27

    2    Future emission standards ..................................................................... 32

    3    Outlook: CO2 as new challenge? ........................................................... 35

    D The transportation industry..................................................................... 38

    1    Under pressure: Rising costs hit transportation industry ....................... 38

    2    Managing rising costs............................................................................. 41

    3    Consumers: Barriers or drivers to technological change?..................... 44

    E Green strategies for sustainable growth ................................................ 49

    1    Driven by resource constraints and rising oil prices .............................. 49

    2    Business models: Meet future challenges ............................................. 52

    3    Harmonisation of emission standards: Highly appreciated but
         hard to realise......................................................................................... 59

    Appendix....................................................................................................... 61

4
The truck industry’s green challenge                       Contents
Headwind or competitive edge?

Expert interviews .......................................................................................... 65

Methodology consumer and transport company survey .............................. 66

Contacts ....................................................................................................... 67

                                                                                                                 5
The truck industry’s green challenge                    Figures
    Headwind or competitive edge?

    Figures
    Fig. 1       Industry stakeholders .................................................................. 11

    Fig. 2       Global truck sales by region (2003–2013) .................................. 15

    Fig. 3       Medium and heavy duty trucks: World........................................ 17

    Fig. 4       Medium and heavy duty trucks: North America.......................... 17

    Fig. 5       Medium and heavy duty trucks: China........................................ 17

    Fig. 6       Medium and heavy duty trucks: Western Europe....................... 18

    Fig. 7       Top 15 – Truck manufacturers.................................................... 19

    Fig. 8       Key facts: Top 5 – European truck manufacturers ..................... 21

    Fig. 9       Consolidation pressure: Market players by region ..................... 22

    Fig. 10      Economic performance and truck market cycles........................ 22

    Fig. 11      Transport volume, economic growth and population
                 growth in the EU-27 .................................................................... 23

    Fig. 12      Modal split in the transport sector ............................................... 24

    Fig. 13      Net importing regions and oil price ............................................. 25

    Fig. 14      Regulations in the truck industry................................................. 28

    Fig. 15      CO2 contribution by sector .......................................................... 29

    Fig. 16      Reduction of pollutants in the European Union .......................... 30

    Fig. 17      Emission standards by region..................................................... 31

    Fig. 18      Euro emission standards apply in various countries .................. 32

    Fig. 19      Emission standards in comparison ............................................. 33

    Fig. 20      Test cycles in Europe, USA and Japan ...................................... 34

    Fig. 21      CO2 – Future’s challenge for the transportation
                 industry?...................................................................................... 35

    Fig. 22      Potential instruments to reduce CO2 emissions in road
                 transportation .............................................................................. 36

    Fig. 23      Average cost structure of Germany’s transport
                 companies ................................................................................... 38

    Fig. 24      Costs for a 1000 l diesel in Germany.......................................... 39

6
The truck industry’s green challenge                    Figures
Headwind or competitive edge?

Fig. 25      German road toll dependent on emission class for
             trucks (> 12 t) .............................................................................. 40

Fig. 26      Ability to shift costs to consumers............................................... 40

Fig. 27      Expected increase of transport costs.......................................... 41

Fig. 28      Cost-savings measures and their respective feasibility.............. 41

Fig. 29      Top 10 purchasing criteria .......................................................... 42

Fig. 30      Average fuel cost increases in the transportation
             industry........................................................................................ 43

Fig. 31      Empty runs in the EU .................................................................. 44

Fig. 32      Consumer perception of trucks ................................................... 45

Fig. 33      Consumer evaluation of environmental friendliness................... 45

Fig. 34      Alternative transport media substituting trucks........................... 46

Fig. 35      Willingness to pay for green products......................................... 46

Fig. 36      Responsibility for reducing truck emissions................................ 47

Fig. 37      Scenario analysis: Driven by transportation need and
             crude oil price .............................................................................. 50

Fig. 38      Powertrain technologies and their ability to meet future
             transportation needs ................................................................... 54

Fig. 39      Truck manufacturers’ approach towards a green future............. 56

Fig. 40      Development of truck industry’s business model ....................... 58

Fig. 41      Top 15 Global truck manufacturers............................................. 64

                                                                                                              7
The truck industry’s green challenge     Abbreviations
    Headwind or competitive edge?

    Abbreviations
    AG          Aktiengesellschaft (public limited company)

    ACEA        Association des Constructeurs Européens d’Automobiles
                (European Automobile Manufacturers Association)

    AFS         Adaptive Front-lighting System

    AMA         American Motorcyclist Association

    B2B         Business to Business

    BGL         Bundesverband Güterkraftverkehr Logistik und Entsorgung

    bn          Billion

    BTL         Biomass to Liquid

    CEO         Chief Executive Officer

    CH4         Methane

    CO          Carbon Monoxide

    CO2         Carbon Dioxide

    DSLV        Deutscher Speditions- und Logistikverband

    EC          European Commission

    EPA         Environment Protection Agency

    ESS         Emergency Stop Signal

    ETC         European Transient Cycle

    ETS         Emission Trading Scheme

    EU          European Union

    FAW         First Automobile Works

    FTP         Federal Test Procedure

    g           Gram

    g/kWh       Gram per kilowatt-hour

    GDP         Gross Domestic Product

    GmbH        Gemeinschaft mit beschränkter Haftung (limited liability company)

    Gpkm        Giga passenger kilometre

8
The truck industry’s green challenge      Abbreviations
Headwind or competitive edge?

GVW         Gross Vehicle Weight

HC          Hydrocarbon

HDT         Heavy Duty Truck

HDV         Heavy Duty Vehicle

IAA         Internationale Automobil-Ausstellung (International Motorshow)

IPCC        Intergovernmental Panel on Climate Change

JP          Japan

k           Thousand

km          Kilometre

kWh         Kilowatt-hour

l           Litre

LDT         Light Duty Truck

LDV         Light Duty Vehicle

m           Million

MAN         Maschinenfabrik Augsburg Nürnberg

MDT         Medium Duty Trucks

NAFTA North American Free Trade Agreement

NOx         Nitrogen Oxide

NTE         Not to Exceed

OECD        Organisation for Economic Cooperation and Development

PFC         Perfluorocarbons

PM          Particulate Matter

R&D         Research and Development

RoW         Rest of World

SF6         Sulphur Hexafluoride

SET         Supplemental Emissions Test

t           Tonne

TCO         Total Costs of Ownership

                                                                             9
The truck industry’s green challenge    Abbreviations
     Headwind or competitive edge?

     tr          Trillion

     U.S.        United States of America

     VDA         Verband der Automobilindustrie (German Automotive Industry
                 Association)

     WHDC        Worldwide Heavy Duty Certification

     WHSC        World Harmonised Stationary Cycle

     WHTC        World Harmonised Transient Cycle

     .

10
The truck industry’s green challenge                   Executive summary
Headwind or competitive edge?

A        Executive summary
The relationships of the main stakeholders of the commercial vehicle
industry form a complicated triangular network. The economic situation of
truck manufacturers is not only impacted by their customers, transport and
logistics companies, but also by various sets of law and regulations. Not
only do the actual customers challenge the manufacturers’ business models
by their requirements, but the legal framework does too – from safety
regulations to emission restrictions that significantly influence the industry’s
development and truck manufacturer profitability. Emission regulation has
become paramount in this context, which was emphasised by Göran
Simonsson, CEO, of Volvo Trucks Region Central Europe GmbH, in his
press statement for the IAA, 2008: “The development nowadays is primarily
driven by emission legislation which means that stringent emission
standards are competing with the resources to develop other customer
benefits.”

     • Which regulatory frame-                                      • Which measures need to
       work needs to be set-up to                                     be conducted to regulate
       achieve climate targets?                                       transportation more
     • How to comply with new                                         efficiently?
       regulations on technological                                 • How to create future trans-
       level?                                                         portation infrastructure?
     • How to balance regulations,               Regulator          • How to balance regulations
       economic success and                                           and economic success in
       competitive advantage?                                         the area of transportation?
                                              Resource
                                             constraints
                                             and climate
                                               change         Trans-
                                    Truck                    portation
                                  manufacturer               company

                           • What is the right technological roadmap to
                             meet future regulations?
                           • Who is bearing the costs for environmental
                             friendly technology and transportation
                             concepts?
                           • Is the consumer willing to pay for ‘green’
                             transportation products?

    Source: PwC

Fig. 1    Industry stakeholders

The triangular network environment is characterised by the following issues:
● Firstly, regulatory requirements have been and will continue to impact
  transport companies. Whether directly through fees, or indirectly by
  increasing costs for vehicle development, commercial vehicle life cycle
  costs are strongly influenced by legal regulations. Costs are the key factor
  for the highly competitive transport industry and any increases in costs
  create new challenges for this sector.
● Secondly, rising oil prices have a strong impact on this industry sector.
  Since fuel costs are the biggest factor contributing to total transportation
  costs, rising fuel costs have put transport companies under high pressure.

                                                                                                    11
The truck industry’s green challenge             Executive summary
     Headwind or competitive edge?

     ● Thirdly, the global political agenda and the public’s increasing
       environmental awareness demands that greenhouse gases such as CO2
       are extensively reduced, with a ‘fair’ share of that reduction to be
       delivered by the transport industry.

     At the same time, further globalisation and the growth in emerging markets
     exacerbate the situation, because growing traffic volume increases fuel
     consumption and concurrently global emissions. The main focus of this
     study will be the examination of possible impacts for truck manufacturers.
     The results are based on interviews with industry executives and experts, a
     survey conducted with executives of transport companies as well as
     consumers and supported by the analysis of our PwC Automotive Institute.

     Generally, the demand for transport services is strongly dependent on
     economic growth. Therefore, the industry has shown strong cyclicality in the
     past, particularly in the mature markets such as the U.S. or Western
     Europe. In addition, significant economic development and growth in the
     emerging markets have fuelled transport volume and demand for
     commercial vehicles. However, these markets confront transitional truck
     manufacturers with different demand patterns caused by different regulatory
     regimes and consumer preferences.

     Further emission standards are steadily increasingly stringent and require
     truck manufactures to provide innovative engine technologies. The
     introduction of varying standards in different markets has increased
     development efforts of manufacturers significantly. Thus far, existing
     emission standards control quantities of substances that are held
     responsible for environmental pollution, e.g. CO, NOx, or particulate matter.
     Manufacturers have been making great improvements in these areas.
     Globally, growing awareness of climate change issues puts the greenhouse
     gas CO2 in the limelight of the public discussion.

      “Within the next 5–10 years, CO2 regulations will inevitably become part of emission
      regulations. The question is, what will it look like and how will it be regulated?”
      Jan-Eric Sundgren, Senior Vice President, Environmental and Public Affairs, Volvo Group

     Unlike other pollutants, CO2 is the fundamental product of combustion
     processes in an engine. Thus, a reduction in CO2 emission can be achieved
     whenever fuel efficiency can be increased. Alternatively CO2 emissions can
     be reduced by utilising regenerative fuel resources, since no additional CO2
     is generated by burning renewable fuels and the CO2 life-cycle stays in
     balance.

     In the end, total transport costs are the driving factor in the highly
     fragmented global transport industry, as B2B businesses – such as the
     commercial vehicle market – are cost sensitive to a greater extent. In
     contrast to the emotionally driven passenger car market, low life-cycle costs
     are the prime motive for purchasing a commercial vehicle. Transportation
     costs are, to a large extent, determined by fuel costs, so that life-cycle costs
     account for fuel consumption as well. Accordingly, demand for fuel efficient
     vehicles rises with increasing fuel costs.

     The public discussion about climate change and greenhouse gases has
     intensified. This discussion has great influence on the passenger car market

12
The truck industry’s green challenge                  Executive summary
Headwind or competitive edge?

at first, and will soon affect the commercial vehicle industry. As the PwC
survey shows, the majority of consumers see that truck manufacturers
should mainly be responsible for reducing CO2 emissions. Even if the PwC
survey covers only the German market, it is probable that a similar attitude
is prevalent in other markets as well, or can be expected to emerge in the
near future. Thus, many industry experts expect the introduction of CO2
emission standards sooner or later and this creates a strong compulsion to
act quickly for truck makers.

Analysing different scenarios for the development of transport volumes and
oil prices, it becomes obvious that innovative competence in developing
clean and fuel efficient engines has an essential impact on the
competitiveness of truck manufacturers, regardless of the initial scenario or
the underlying market conditions. Thus, in connection with strict emission
standards, innovative engine technologies create entry barriers to
established markets in North America and Europe and they facilitate entry
into emerging markets, as domestic suppliers often have not acquired the
necessary technology. In summary, expertise in clean and fuel efficient
propulsion technology will generate a significant competitive edge.

While improvements for long-distance traffic are generated by advancing
diesel engines and using alternative fuels, enhancements of alternative
propulsion technology like hybrids or natural gas engines are utilised to
increase fuel efficiency for short distance traffic. As long as truly efficient
new technologies have not been developed, manufacturers face great
threats if they invest in the wrong technologies.

 “Measures to increase efficiency are determined by the size of a truck. The focus for heavy
 trucks, which are used for long-haul transports will lie on alternative fuel, however, diesel will
 still be predominate. While for the distributor traffic (light and medium trucks up to 12 t)
 alternative drive concepts such as natural gas and hybrid will be pursued as well.”
 Dr. Thomas Schlick, Executive Director, VDA

Therefore, communication with the key customers – the transport
companies – will become essential for truck manufacturers to develop
technological innovations that meet customer demands. Moreover, cost-
intensive R&D efforts will trigger increasing consolidation pressure in the
industry, particularly for emerging markets. Finally, developing the right
technologies leads to significant opportunities to create a competitive edge.

The search for basic approaches for further reducing pollutant emissions
and increase fuel efficiency not only considers the powertrain. Lightweight
construction and improved aerodynamic attributes are taken into account for
vehicle design. New telematics and innovative transportation concepts like
the ‘megaliner’ aim at increasing utilisation of infrastructure. This increases
the need to manage the augmented product and to redesign the product
range to meet market requirements.

With an increasing number of different propulsion technologies and
innovative transportation concepts, economies of scale will be eroded. This
effect will additionally be intensified by the requirement of customised
transport solutions when entering emerging markets. Therefore, cost
efficient production and product modularisation will gain in significance.

                                                                                                      13
The truck industry’s green challenge    Executive summary
     Headwind or competitive edge?

     The current market situation, which is identified by high oil prices and
     sustained growing transport demand, offers a good starting point for
     European manufacturers to further generate growth, since they already
     achieved technological expertise in low-emission and fuel efficient
     propulsion technologies and forward-looking transport concepts.

     While production excellence and ongoing globalisation have long been
     addressed, managing technological risk and designing the range of
     augmented products are now in the spotlight.

     The implementation of globally harmonised standards would be a significant
     relief for truck makers, since it would drastically reduce competing R&D
     efforts. Financial resources could then be allocated for the development of
     innovative propulsion technologies. The implementation of globally
     harmonised standards requires intense coordination and the protracted
     nature of ongoing negotiations exemplifies how difficult it is to achieve a
     consensus in this matter. A focus on stricter enforcement of emission
     standards and shorter time periods between succeeding regulatory levels
     could be a promising approach in this context. An important step towards
     harmonised standards could be the World Heavy-Duty Certification
     (WHDC), a new standardised test cycle, which might be introduced with
     EURO VI, and gradually be introduced by other countries.

     In summary, as a result of the green challenge, the truck manufacturing
     industry must intensify their efforts to cope with regulations and stay
     competitive with other transport means. Nevertheless, the European
     manufacturers are in a promising position, since exhaust emission
     regulations and high fuel prices are going to increase their opportunity to
     exploit their technological competitive edge on a global scale. The
     implementation and enforcement of global emission standards could even
     improve this position. At the end of the day, there seems to be a good
     chance for the European truck industry that the regulation-induced
     headwind turns into a tailwind.

14
The truck industry’s green challenge                                The truck industry and its underlying dynamics
Headwind or competitive edge?

B                       The truck industry and its underlying
                        dynamics
The global truck industry plays a key role in the transportation of goods from
the manufacturer to the consumer. Although market conditions vary across
regions, the global truck industry continues to be a pivotal agent to enable
and support economic growth.

1                       Global truck market: Growth driver emerging
                        markets
Despite the various market conditions and challenges, the global truck
industry is growing. The global demand for medium and heavy duty trucks
rose by approximately 5.6% from 2006 to 2007 to reach a sales volume of
2.4 m units. Based upon 2007 data, the truck market is dominated by the
emerging markets of China, India and Russia, which together account for
more than 46% of global demand. China alone accounts for 30% of global
truck demand, while North America and Western Europe account for 19%
and 14% respectively. Global truck demand is predicted to grow by another
3.5% per year amounting to 2.9 m units by 2013.

                        1.500.000

                        1.250.000
    Volume (in units)

                        1.000.000

                         750.000

                         500.000

                         250.000

                               0
                                    2003 2004 2005 2006 2007 2008e 2009e 2010e 2011e 2012e 2013e
                                                                       Year
                                        China, India, Russia   Eastern Europe             North America
                                        Western Europe         Rest of world

      Source: Global Insight, Global Automotive Group

Fig. 2                   Global truck sales by region (2003–2013)

Western and Eastern Europe
The European market, the headquarters of many of the leading truck
makers, is driven by the individual markets’ cycles. Western European
markets grew at a stable rate between 4% to 5% in the past, while the last
years have been characterised by a slow-down. This slow-down is primarily
driven by inflationary pressure and the subsequent price increases for
consumer goods with the affect of decreasing demand in the transportation
industry. Economic problems in the European market are expected to
subside in the near future. According to the OECD’s Economic Outlook,
published in June 2008: “The economic expansion is likely to moderate
during 2008, with a trough in the second quarter. Output growth is being

                                                                                                                 15
The truck industry’s green challenge                         The truck industry and its underlying dynamics
     Headwind or competitive edge?

     slowed by tighter financial conditions, higher inflation and weaker housing
     market activity. Growth is expected to drop below potential this year, before
     picking up slowly through 2009 as financial headwinds dissipate and the
     external environment improves.” Thus, marginal growth of 0.3% per annum
     in the European truck market is expected in the short-term. The region’s
     outlook is boosted by much faster growing transportation needs in Eastern
     Europe where current sales were up 15% and growth of 4% is expected in
     the upcoming years.

     North America
     North America is one of the major markets for the industry, with
     approximately 450,000 units sold in 2007. The market grew at a moderate
     level of 4.4% in the last four years. The new American emission standard
     EPA07 introduced in 2007 led to a pre-buy effect in 2006, increasing sales
     volumes for the year which were then followed by a sharp drop in 2007.
     Looking to the future the North American truck market faces several
     challenges, including the new emissions legislation in 2010 and the markets’
     uncertain economic prospects could lead to high pressure in this market.

     China, India and Russia
     These markets are the key drivers for growth in the truck industry. The
     leading market is China with about 700,000 trucks sold in 2007 and an
     annual growth rate of 15.4% over the past four years. The strong growth is
     primarily driven by the booming transportation needs and large investments
     in road infrastructure. The introduction of the new Euro III emission standard
     in 2007 also had a positive effect on Chinese sales. India and Russia are
     following China with average growth rates of 16% per annum. Russia, with
     its predicted sales volume of approximately 170,000 trucks is a market that
     is of growing importance, especially for the European based truck
     manufacturers.

     Market segmentation
     The truck market is broadly segmented by gross vehicle weight (GVW)
     which indicates the use of the truck. Medium-duty trucks span the gross
     vehicle weight range 6 to 16 t and the heavy-duty trucks cover those with
     gross vehicle weight of over 16 t.1

     Medium-duty trucks (MDTs) are typically utilised for local and regional
     distribution, as they are more flexible and suited to urban roads and
     infrastructure than heavy-duty trucks (HDTs), which are mainly used for
     long-haul transportation and heavier loads.

     HDTs account for 1.45 m units of the global total, with MDTs taking the
     remaining 0.9 m units. HDTs have also been dominant in terms of recent
     growth – between 2003 and 2007 HDTs grew by 12% per year, while MDTs
     grew by 6%.

     1
         Light-duty trucks with a GVW from 3.5-6t are not within the scope of this study. Countries and truck
         manufacturers use different categories to define LDT, MDT and HDT.

16
The truck industry’s green challenge                                    The truck industry and its underlying dynamics
Headwind or competitive edge?

                         2000

                         1600

   Volume (in k units)
                         1200

                          800

                          400

                               0
                                    2003   2004   2005   2006   2007     2008   2009    2010   2011   2012   2013
                                                                         Year
                                                           Heavy-duty     Medium-duty

    Source: Global Insight, Global Automotive Group

Fig. 3                    Medium and heavy duty trucks: World

                         400
   Volume (in k units)

                         300

                         200

                         100

                           0
                                   2003    2004   2005   2006   2007    2008    2009    2010   2011   2012   2013
                                                                        Year
                                                          Heavy-duty     Medium-duty

    Source: Global Insight, Global Automotive Group

Fig. 4                    Medium and heavy duty trucks: North America

                         800
   Volume (in k units)

                         600

                         400

                         200

                           0
                                   2003    2004   2005   2006   2007    2008    2009    2010   2011   2012   2013
                                                                        Year
                                                          Heavy-duty     Medium-duty

    Source: Global Insight, Global Automotive Group

Fig. 5                    Medium and heavy duty trucks: China

                                                                                                                     17
The truck industry’s green challenge                              The truck industry and its underlying dynamics
     Headwind or competitive edge?

                              300

        Volume (in k units)
                              200

                              100

                                0
                                    2003   2004   2005   2006   2007   2008   2009    2010   2011    2012   2013
                                                                       Year
                                                          Heavy-duty    Medium-duty

         Source: Global Insight, Global Automotive Group

     Fig. 6                    Medium and heavy duty trucks: Western Europe

     In the forthcoming years demand for HDTs will continue to overweigh the
     MDTs as the drivers of topline truck growth – China, Russia and India – are
     of considerable geographic scale and are building up their road network and
     transportation infrastructure – giving conditions suited to HDTs. China is
     predicted to increase its HDT sales gradually until 2013 accounting for an
     annual growth rate of 7.3% amounting to an additional sales volume of
     250,000 units. Simultaneously, China’s demand for medium-duty trucks will
     remain stable across the forecast period. A similar growth pattern is
     predicted for India.

     Key players
     Most of the world’s major truck manufacturers are headquartered in
     Western Europe and North America, but truck manufacturers, such as Tata,
     Dongfeng and First Automotive Works (FAW) from the emerging economies
     of India and China are gaining ground, and stand as the 4th, 5th and 6th
     largest manufacturers respectively on a global level.

18
The truck industry’s green challenge                   The truck industry and its underlying dynamics
Headwind or competitive edge?

                Daimler

                  Volvo

                Paccar

                   Tata

              Dongfeng

          FAW (China)

               Navistar

   China National HTC

                   MAN

          Ash. Leyland

                  Iveco

                 Scania

                   Isuzu

                   Hino

                           0      50      100      150       200      250      300      350       400
                                                  Sales volume (in k units)
    Source: VDA

Fig. 7    Top 15 – Truck manufacturers

Of the top 15 manufacturers measured by unit sales volumes, only two
manufacturers – Daimler and Volvo – can truly be seen as global players.
These manufacturers have multiple brands in their portfolio, which originate
from different regions of the world and backed by local production, which
gives them global player status. However, all European truck manufacturers
are playing a key role in development of innovative technologies and
sustainable transport solutions.

  “Besides the technological adoption to meet global emission targets and the global
  harmonisation of various emission standards, the localisation of trucks in the different regions
  will be a key challenge in the future to cope with. It is crucial to establish ourselves in low-cost
  markets with respective trucks.”
  Georg Weiberg, Head of Truck Product Engineering, Daimler AG

                                                                                                         19
The truck industry’s green challenge                   The truck industry and its underlying dynamics
     Headwind or competitive edge?

      Manufacturer                     Key figures                             Market strategies
      Daimler Trucks   Headquarter: Stuttgart, Germany               ● ‘Global Excellence’ with the
                                                                       initiatives management of cycles,
                       Brands: Mercedes-Benz, Freightliner,
                                                                       operational excellence, growth and
                       Mitsubishi Fuso, Sterling, Thomas Built,
                                                                       market penetration and future
                       Western Star
                                                                       product generations as important
                       Employees: 80,067                               tool for the business strategy
                       Revenue: EUR 28,466 m                         ● Capturing down-stream value
                       (trucks)                                        through vehicle leasing, fleet
                                                                       management, repair and
                       Operating profit: EUR 2,121 m (trucks)          maintenance
                       Net sales by market                           ● Strategies to enter emerging
                         WE      NA         SA        A      Other     markets dependent upon market
                                                                       situation, cooperation, and
                        19%      24%        11%      31%      15%      acquisitions as applicable strategic
                                                                       options to enter those markets
      IVECO            Headquarter: Turin, Italy                     ● Aiming at increasing market share
                                                                       in the Central and Eastern
                       Brands: Iveco, Astra, Irisbus, Magirus
                                                                       European countries by launching
                       Employees: 26,461                               new products
                       Revenue: EUR 11,174 m                         ● Emerging markets are in the
                                                                       focus, the Russian and Indian
                       Operating profit: EUR 813 m                     market are entered with local
                       Net sales by market                             partners
                           WE               EE             Other     ● In terms of alternative
                                                                       technologies compressed natural
                           70%              15%            15%         gas is seen as the most favourable
                                                                       solution
      MAN              Headquarter: Munich, Germany                  ● Aiming at global growth
                       Brands: MAN, ERF, Neoplan, Star               ● Joint Venture with Force Motors
                                                                       Ltd. (India) as key aspect to
                       Employees: 36,591                               realise global growth
                       Revenue: EUR 9,023 m (trucks)                 ● Assembly plant in Krakow enables
                       Operating profit: EUR 1,023 m (trucks)          MAN to manufacture within the
                                                                       strongly growing Eastern
                       Net sales by market                             European markets
                            WE              EE             Other     ● Optimising organisation and the
                                                                       process of production
                           49%              15%            36%
                                                                     ● Strengthening distribution network
                                                                       in Eastern Europe and the Middle
                                                                       East
      Scania           Headquarter: Södertälje, Sweden               ● Strong market position in Russia
                                                                       shall be expanded by larger
                       Brands: Scania
                                                                       service network
                       Employees: 35,096                             ● Efficiency increase is to be
                       Revenue: EUR 5,586 m (Scania                    reached by the Scania Productivity
                       Trucks)1                                        System (SPS)

                       Operating profit: EUR 1,235 m (vehicles       ● Service products are seen as an
                       and service)1                                   important issue to provide
                                                                       maximum value to the customer
                       Net sales by market
                                                                     ● Large investments are done to
                         WE       EE        SA        A      Other     increase production capacity
                        52%      22%        14%      9%       3%

20
The truck industry’s green challenge                   The truck industry and its underlying dynamics
Headwind or competitive edge?

 Manufacturer                      Key figures                            Market strategies
 Volvo             Headquarter: Gothenburg, Sweden              ● Market growth is aimed especially
                                                                  in Eastern Europe and Asia
                   Brands: Volvo, Renault, Mack, Nissan
                   Diesel                                       ● Significant investments in
                                                                  increasing production capacity
                   Employees: 63,200
                                                                ● Strong focus on the aftermarket
                   Revenue: EUR 19,955 m (trucks)1                and further development of the
                   Operating profit: EUR 1,613 m (trucks)1        dealer network
                                                                ● Focus on products with increased
                   Net sales by market
                                                                  customer value
                    WE     EE      NA     SA      A     Other   ● Safety aspects and vehicle and
                   42%     12%    14%     6%     17%     9%       plant emission reductions are
                                                                  strategic key goals
                                                                ● Productivity and cost-efficiency
                                                                  improvements
 1
  Exchange Rate 31 Dec 2007
 WE = Western Europe, EE = Eastern Europe, NA = North America, SA = South America, A = Asia
 Source: Company web sites
Fig. 8    Key facts: Top 5 – European truck manufacturers

Market dynamics – Consolidation
While the light vehicle market – those vehicles up to and less than 6 t gross
vehicle weight – saw almost 69 m units assembled in 2007, the truck market
saw approximately 2.4 m units of medium and heavy-duty trucks assembled
in 2007. Due to the relative low level of market volume and the cyclical
demand for trucks, economies of scale are more difficult to realise and
uncertainties in product planning must be overcome by the truck
manufacturers. This factor has led to strong competition and consolidation
in Western Europe and North America and will no doubt lead to
consolidation in the fragmented Asian scene. According to market analysis,
Asia has 33 manufacturers, of which most are located in China. Of these
Asian manufacturers, ten truck manufacturers produce 87% of the overall
volume, while the remaining 23 players account for only 13%. This provides
a significant contrast to the concentrated West European markets where
just four manufacturers produce 89% of the volume. Despite the market size
and growth perspectives, the number of competitors in the Asian market
appears to be unsustainable, since the cumulative number of manufacturers
in Western Europe, NAFTA and the Rest of World (RoW) is far lower than in
Asia alone.

                                                                                                     21
The truck industry’s green challenge                                               The truck industry and its underlying dynamics
     Headwind or competitive edge?

                                             100%

         Share in region’s assembly volume
                                              80%

                                              60%

                                              40%

                                              20%

                                               0%
                                                      1   3   5   7   9   11 13    15 17 19 21        23 25    27 29 31     33 35
                                                                               Number of alliance groups

                                                                   Asia    Western Europe         NAFTA    Rest of world
         Source: Automotive World and PwC Analysis

     Fig. 9                                    Consolidation pressure: Market players by region

     Market dynamics – Cyclicality
     Economic growth brings greater demand for the transport of goods and
     services. As economies are subject to the business cycle, there is a
     corresponding degree of cyclicality in truck markets. As economies grow,
     demand for goods transportation increases, either by trucks, trains, ships or
     planes. Similarly, when economies face downturns, transportation needs
     also decrease. This cyclicality is straightforward in mature markets, such as
     in the U.S. and Western Europe. On an annual basis, growth rates of GDP
     expansion and truck sales are linked as such that a drop in GDP by 1% is
     accompanied by a drop of truck sales of 7%. Hence, the truck market is a
     pro-cyclical market, which highly correlates with the current economic
     performance.

                                             50%                                                                             8%
                                             40%
                                             30%                                                                             5%
        Sales growth

                                                                                                                                  GDP growth

                                             20%
                                             10%                                                                             2%
                                              0%
                                             -10%                                                                            -1%
                                             -20%
                                             -30%                                                                            -4%
                                                    1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
                                                                                      Year
                                                                  U.S.-Truck sales growth    U.S.-GDP growth
         Source: UNStats, PwC

     Fig. 10                                   Economic performance and truck market cycles

22
The truck industry’s green challenge                                The truck industry and its underlying dynamics
Headwind or competitive edge?

2                         Road transportation: Increasing demand
The markets are on the move: Due to advancing globalisation, declining
trade barriers and an increasingly mobile workforce, the transportation
industry continues to enjoy above average growth. This also holds true for
majority regions such as the European Union, with about EUR 250 bn of
revenue.

Based upon data and forecasts from the European Commission, there will
be ample room for growth in the economic activities, passenger transport
activities and freight transportation by trucks in the European Union.
However, the need for road transportation of trucks is forecasted to exceed
economic growth. A growing European single market and the increasing
outsourcing of manufacturing processes were leading to an increasing
demand for road transportation. However, due to the increasing importance
of the tertiary sector, road transport activities and GDP growth will gradually
decouple after 2025.2

                          300

                          250
     Index (1900 = 100)

                          200

                          150

                          100

                          50
                                1990    1995     2000      2005     2010      2015     2020    2025     2030
                                                                     Year
                                GDP     Population      Passenger transport activity   Transportation by trucks

      Source: Eurostat

Fig. 11                    Transport volume, economic growth and population growth in the EU-27

While transportation of goods and services can be conducted by several
modes – trains, trucks, ships and airplanes – it is the greater flexibility of
truck transportation which has seen it increasingly favoured compared to
other available modes of transportation. For example, while road transport
carries more than 70% of all inland freight in Europe, railways and inland
navigation account for less than 30%3 and is set to fall further as freight
transportation on roads is set to increase to 75.4% by 2030. However,
industry experts reckon that there is sufficient demand for all transport
means; the industry needs to work on increasing overall efficiency of the
combined transportation modes.

2
    European Commissions Report on ‘European Energy and Transport – Trends to 2030, Update 2007’.
3
    ACEA and Eurostat.

                                                                                                                  23
The truck industry’s green challenge                                               The truck industry and its underlying dynamics
     Headwind or competitive edge?

                                        4,000
                                                                                                                            9.6%

          Transport volume (in bn km)
                                                                                                                   9.7%
                                                                                                           10.0%            15.0%
                                        3,000                                                    10.2%             15.1%
                                                                                        10.6%              15.2%
                                                                                                 15.3%
                                                                            11.4%       15.4%
                                        2,000                     12.5%     16.0%
                                                13.7%    13.7%    18.2%
                                                27.9%    20.0%                                                              75.4%
                                                                                                           74.8%   75.2%
                                                                                        74.0%    74.4%
                                        1,000                               72.6%
                                                         66.3%    69.3%
                                                58.4%

                                           0
                                                1990      1995     2000         2005    2010      2015     2020    2025     2030
                                                                                        Year
            Source: Eurostat                                              Trucks       Rail    Inland navigation

     Fig. 12                              Modal split in the transport sector

     Environmental pressure generated by the growth of road transportation has
     forced the European Commission to publish several reports on
     transportation with the aim of fostering a modal shift away from roads and
     toward railways.4 However, it remains to be seen whether the different rail
     networks within the European Union can be harmonised, and whether the
     logistical requirements of flexibility and speed to manufacture, process and
     deliver intermediate and final goods under just-in-time production conditions
     can be met sufficiently by rail transport to challenge road transport’s
     dominance.

     3                                   Key challenge for the industry: Driving
                                         efficiency
     Growing markets and growing transportation needs usually mean
     favourable conditions for the truck manufacturing industry. However, there
     are some critical issues such as high fuel price, concerns about emission
     regulations, and turbulent changes on the demand side, such as rising costs
     and loading capacity. As the two stakeholders of the industry, the truck
     manufacturers and the transport companies depend on each other as
     demand of goods and demands of trucks are intertwined. It can be said that
     challenges are affecting both stakeholders to a similar extent. Crude oil
     prices and emission regulations are having, and will have in the future, a
     significant impact on the truck industry.

     High crude oil prices has boosted energy costs and commodity prices,
     creating inflationary pressure. In the past year, the cost of diesel increased
     by a staggering 31%. The role of fuel prices within the total cost of owner-
     ship is critical, as this is the primary attribute that transportation companies
     use for purchasing decisions. This factor is of even greater importance for
     those companies running their own truck fleet as many transportation
     companies are at the risk of bankruptcy due to increasing fuel prices. This

     4
         European Commission: ‘Towards a rail network giving priority to freight’ (COM(2007)608).

24
The truck industry’s green challenge                                     The truck industry and its underlying dynamics
Headwind or competitive edge?

shows that further price hikes will have an enormous impact on all, not just
transportation companies but the truck manufacturers themselves.

Assumptions on future oil price development is difficult. Some market
experts predict high level prices, others expect more moderate levels.
Examining the oil dependency by regions reveals that Asia-Pacific, Western
Europe and North America are net importing regions. Despite the fact that
crude oil prices have been rising in current years, the overall demand in net
importing regions increased even more, peaking on a level of 1.7 tr t of
crude oil imports by the year 2007. While Western Europe’s dependence on
oil declined during the prior years, regions like Asia-Pacific, with China in
particular, and North America are demanding more.

                             2.400                                                                              120
   Import volume (in mn t)

                             2.000                                                                              100

                                                                                                                      Oil price (USD/barrel)
                             1.600                                                                              80

                             1.200                                                                              60

                              800                                                                               40

                              400                                                                               20

                                0                                                                               0
                                     1977
                                     1979
                                     1981
                                     1983

                                     1999
                                     2001
                                     2003
                                     2005
                                     2007
                                     1965
                                     1967
                                     1969
                                     1971
                                     1973
                                     1975

                                     1985
                                     1987
                                     1989
                                     1991
                                     1993
                                     1995
                                     1997
                                                                      Year
                                     Asia Pacific    Western Europe       North America      Price per barrel
     Source: British Petroleum, Statistical Energy Review 2008

Fig. 13                        Net importing regions and oil price

As observable in recent history, the continuing industrial and economic
development across the globe has brought an inexorable increase in the
demand for oil. For instance, China’s economic growth and development
since the 1980s was accompanied by a 75% increase in oil demand from
1980 to 2006.

Reliability and compliance with emission standards are broadly regarded as
another important factor. With the introduction of the Euro IV and the JP05
in 2005, the truck industry saw major environmental milestones in Europe
and Japan, followed by stricter emission regulations for the U.S. in 2007.
Looking forward, the next step to deal with new emission standards is
coming in 2010 for the U.S. and 2012 in Europe. Regulatory rules have a
significant impact on the industry. The truck manufacturers must adopt
technological approaches, and the transportation industry has to deal with
significant toll fees for emissions.

These market reactions to regulatory frameworks and increasing oil prices
increase the volatility of an already-cyclical market environment. Those
circumstances make it difficult to predict the direction of cyclicality in time,
managing the fixed costs, dealing with new technologies and localising
products.

                                                                                                                                               25
The truck industry’s green challenge               The truck industry and its underlying dynamics
     Headwind or competitive edge?

      Key facts
      ● Eastern Europe and Asia, with China in particular, are going to be the future growth markets.
      ● The Asian market is fragmented and opportunities for consolidation exist.
      ● Demand for road transportation probably will continue to increase.
      ● Truck market and economic development are intertwined, leading to cyclicality of truck sales.
      ● Rising oil prices are common challenges for truck manufacturers and transportation
        companies.

26
The truck industry’s green challenge                      The government: Value driver or driver’s worry?
Headwind or competitive edge?

C         The government: Value driver or driver’s
          worry?
Emission standards are just one of many regulations that truck
manufacturers have to address. Within the EU, truck makers have to comply
with environmental, safety, lighting, and other general rules to achieve
compliance before trucks can ply the roads. These regulations have evolved
over time and truck manufacturers have to engineer their vehicles to comply
with these requirements. The maze of regulations is further complicated by
the need to comply with laws in other parts of the world. Therefore, truck
manufacturers must make considerable R&D investments to ensure that
products are appropriately suited for the respective local markets. Daimler
CEO Dieter Zetsche described the situation this way: “Our engineers
sometimes feel as if they are forced to play European soccer on an
American baseball diamond by Japanese sumo wrestling rules.”

The regulations that have been implemented in the past and which are
going to be implemented in the years to come are extensive. But these
regulations, at times with regulator’s financial support, together with cost
pressures, create avenues for technological breakthroughs. This is true for
safety aspects but also relevant on other features around the truck (see
figure 14, on page 28).

1         On the path to a cleaner environment

    “The industry knows about its high social responsibility. Therefore, safety aspects are especially
    stressed as one of the key issues. However, political incentives are necessary to get
    developments onto the street. As cost-oriented costumers wouldn’t have any inducement to
    acquire costly safety measures.”
    Dr. Thomas Schlick, Executive Director, VDA

CO2 emission, which is currently a relevant topic in the emissions
discussion within the passenger car segment, has not been subject of a
current proposal within the legislative framework for the truck industry.
According to the Intergovernmental Panel on Climate Change (IPCC)
Assessment Report 4 (2007), 13% of the world’s greenhouse gas emissions
such as CO2 derive from the transport sector and therefore contribute to
global warming.5 Within this share passenger transport accounts for a larger
share than road transportation. While this figure may appear to be low, the
public image is that trucks, as outlined later, are dirty and increase pollution.
Nonetheless, truck makers realise that while they are part of the challenge,
they are also part of the solution, and therefore, view emissions reductions
as one of their key priorities.

5
    The gases carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs),
    perfluorocarbons (PFCs) and sulphur hexafluoride (SF6) are the major greenhouse gases (‘direct’ greenhouse
    gases). In addition, gases as nitron oxides (NOx) and carbon monoxide (CO) are contributing to ozone
    depletion rather than to global warming.

                                                                                                             27
The truck industry’s green challenge                 The government: Value driver or driver’s worry?
     Headwind or competitive edge?

          Time           General        Environmental            Safety                  Lighting

          2007
                                        Diesel emission    Indirect vision        Variable intensity
                                        HDV – Euro IV      devices (rear          signalisation
                                        (Phase 2)          mirrors)               (proposal, optional
                                                                                  06/2007)
                                        Emission LDV       Speed limiters
                                        Euro IV                                   AFS Installation
                                                           Seat strength          (proposal, optional
                                                                                  06/2007)
                                                           Frontal protection
                                                                                  Emergency stop
                                                           Seat belt & seat       signal (EES)
                                                           belt anchorages
                                                                                  (proposal, optional
                                                                                  06/2007)
          2008
                                        Diesel emission    Interior fittings      Front fog lamp
                                        HDV – Euro V                              installation (proposal,
                                                           Speed limiters         optional 06/2007)
          2009
                  Fuel quality                             Identification of      Conspicuity
                                                           controls               markings
                  Suppression radio
                  (EMC)

          2010
                  Buses & coaches       Recyclability      Fuel tanks/rear    DRL installation
                  interior fitting                         protection devices requirements
                  requirements                                                (proposal, new
                                                           Front impact       homologation)
          2011                                             Indirect vision
                  Biofuels 2nd step     Emission LDV       devices
                                        Euro V
                  Vehicle type                             Electronic stability
                                        (proposal)
                  approval                                 control (proposal)
                  (proposal)

          2012
                                                           Front underrun
                                                           protection
                                                           Cab strength
                                                           (proposal)
                                                           Door latches &
                                                           hinges (proposal)

          2013
                                        Diesel emission    Pedestrian
                                        HDV – Euro VI      protection
          2014                          (proposal)
                                                           Vehicle
                                                           compatibility
          2015                                             (proposal)

                                        Emission LDV
                                        Euro IV
         Source: Iveco                  (proposal)

     Fig. 14   Regulations in the truck industry

28
The truck industry’s green challenge                   The government: Value driver or driver’s worry?
Headwind or competitive edge?

                            Energy supply                                                26%
                                  Industry                                   19%
                                 Forestry                                 17%
                               Agriculture                          14%
                                           1
                               Transport                           13%
   Commercial and residential buildings                      8%
                  Waste and wastewater           3%

                                           0%     5%         10%   15%      20%      25%      30%
    1   Transport including passenger and freight traffic.
    Source: IPCC

Fig. 15    CO2 contribution by sector

Nearly all trucks are powered by diesel engines that generate exhaust
gases such as Nitrogen Oxide (NOx), Particulate Matter (PM), Carbon
Monoxide (CO), Hydrocarbon (HC), and Carbon Dioxide (CO2). These
exhaust gases, with the exception of CO2, are regulated based upon various
global emission standards as they primarily contribute to acid rain, smog,
and respiratory diseases. However, these pollutants are caused by an
incomplete combustion of fuel, while CO2 would be the only gas if the
combustion were complete. Hence, there is a trade-off between the
emission of these exhaust gases, such as NOx and the emission of CO2.

In response to reducing air pollution, regulators have implemented emission
standards. These include the EPA standards in the U.S., Euro standards in
the EU, and JP standards in Japan. These governmental regulations limit
the emission of NOx, PM, CO, and HC. These standards vary across the
regions, and are determined by government objectives to combat these
pollutants.

European-wide norms for commercial vehicles were introduced for the first
time with the implementation of Euro 0 in 1988 which became mandatory in
1990. The Euro 0 standard sets emission limits for CO, HC and NOx
emissions. PM emission was not part of the legislation then, but changed
with the introduction of Euro I in 1992 where PM emission was included. In
the subsequent years the EC gradually tightened the emission limits for the
four pollutants, through a series of directives ranging from Euro 0 through
Euro V.

                                                                                                    29
The truck industry’s green challenge                      The government: Value driver or driver’s worry?
     Headwind or competitive edge?

                                                                                                    100%
             Euro 0                                                                                 100%
         1988–1992                                                                                  100%
                                                                                                    100%
                                                         40%
             Euro I                                            47%
         1992–1995                                                                       83%
                                                                                                    100%
                                                   33%
             Euro II                                     42%
         1995–2000                                              49%
                                                     38%
                                      17%
            Euro III                         25%
         2000–2005                                 35%
                                             25%
                                    12%
            Euro IV                    18%                                                Current
         2005–2008                        24%                                            standard
                              5%
                                    12%
             Euro V                    18%
         2008–2013                   14%
                              5%
                         1          12%
               Euro VI         5%
               2013–          3%
                              3%

                         0%           20%           40%               60%          80%           100%
                                                    PM     NOx       HC     CO
        1   EU Proposal as of 21 Dec 2007
        Source: PwC

     Fig. 16     Reduction of pollutants in the European Union

     In recent years, the emission legislation has focused on the reduction of PM
     and NOx emissions, as these two pollutants have been identified for having
     particularly negative impacts on air quality and health. Based upon the
     current Euro IV standard, PM and NOx emission limits are at 5% and 24% of
     the original limits set in Euro 0, and further reductions are anticipated with
     the implementation of future Euro standards such as Euro V and Euro VI.

     As the EU standards were the first to be introduced to combat emissions,
     the U.S. and Japanese governments followed the European approach to
     enable stricter emissions regulations.

30
The truck industry’s green challenge                  The government: Value driver or driver’s worry?
Headwind or competitive edge?

          North- and South America       Europe/Middle-East/Africa          Asia/Pacific

          EU standards and countries following EU standards
          U.S. standards and countries following U.S. standards
          Countries accepting EU and U.S. standards
          Japan standard
          No standard

    Source: PwC

Fig. 17     Emission standards by region

Many countries outside of Europe have applied Euro standards, making the
European emission standards the most widely adopted worldwide. In terms
of sales volumes, regions applying Euro standards account for
approximately 1.6 m units, while countries applying U.S. standards account
for approximately 450 k units. The residual of 350 k units are sold in
countries that apply Japanese standards, accept both European and U.S.
standards, or do not have any standards.

In terms of emissions and the regulatory response towards them, emerging
economies play a key role. This is due to the fact that these markets are
expected to contribute significantly to global emissions caused by
transportation in the future. Within the emerging markets, the
implementation of Euro standards will occur at different time periods across
various countries and metropolitan areas. In China and India, large cities
have introduced or will introduce future standards earlier than on a national
level, underlining the necessity of emission standards especially in cities
with a large population for the purposes of clean air.

  “Securing competence to meet current and future emission regulations is a big challenge.”
  Jan-Eric Sundgren, Environmental and Public Affairs, Senior Vice President, Volvo Group

                                                                                                  31
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