„The German market concerns me“
Mr Jackstein, short-time working is in place at the MAN plants in Munich, Nuremberg and Salzgitter. What would be the next step if demand for trucks in Europe remained so weak?
In the Traton Group, we always have a kind of script in the drawer for all four of our brands. Measures are defined for the worst-case scenario. At the moment, however, MAN has not decided on any further steps. That would depend on how the market develops.
What is in the script?
It's a variegated collection of measures. Short-time working is the way forward for now, along with appropriate cost discipline at MAN, of course.
MAN agreed to a „Collective Labour Agreement for the Future“ in 2021. This stipulates that compulsory redundancies at the German sites until the end of 2026 are only possible with the consent of IG Metall. Would such redundancies be an option?
I don't see any basis for this at the moment.
So the market situation is not that bad?
Incoming orders are developing pretty much as we predicted over last year. We still had very full-order books in 2023. Now, the situation is still reasonably comfortable, even if it is a little tighter in Europe. But we don't want to go into 2025 with a thin order book without having reacted to the weakening of the market at an early stage. That's why MAN's management has decided in favour of short-time working.
And the other brands?
Scania has also reduced production slightly in Europe. At the second production hub in South America, the situation is precisely the opposite. There are a lot of tailwinds in the market there, from which Scania is benefiting.
VW Truck & Bus, with its focus on South America, is also benefiting from this.
Last year, VW Truck & Bus achieved an adjusted operating return on sales of 8.8%. In the first half of this year, it was 11.8%.
Navistar in North America is struggling with bottlenecks in the supply chain. Why is that?
There were difficulties with suppliers. Last year, it was mainly about lorry frames, the so-called frame rails. This year, there was a fire at a supplier of exterior mirrors in Mexico. This led to significantly lower deliveries of our trucks in the second quarter. However, we are confident that we will essentially make up for this by the end of the year.
Does Navistar only have one supplier for mirrors?
There are historical reasons for this. Navistar had a clear focus on costs due to its difficult situation at one time, and as a result relied primarily on one supplier at a time. This worked well before the coronavirus pandemic with stable supply chains. However, we are now in a different situation, and are establishing a dual-sourcing strategy for essential components.
Back to the market weakness in Europe and especially in Germany: Is this still a normalisation after three boom years, or now a crisis?
I am particularly concerned about the German market. However, I wouldn't use the word „crisis“ for Europe as a whole at the moment. We continue to see a normalisation of the markets at a historically still respectable level.
And what will happen in 2025?
It's a little too early to give an outlook. We still have to wait and see how incoming orders develop in September and the fourth quarter. The critical question is when incoming orders will pick up again.
Do you recognise any signs of this?
There are at least some grounds for this. For one thing, the trucks on the roads have now reached a significant age.
What is the average age?
In Europe, the average fleet is now over 14 years old, which is one year older than before the coronavirus pandemic. Trucks in Eastern Europe are typically slightly older than those in the west and north. On the other hand, there is a certain confidence with regard to financing. We had low interest rates for more than a decade, and then significant increases. As the European Central Bank continues to lower interest rates, it will be easier for our customers to buy or finance new trucks.
What is the average utilisation of your production capacities?
Overall capacity utilisation is reasonable at the moment.
Do you not want to give a figure or range?
No.
What impact is the weaker demand in Europe having on prices?
In 2023, we were able to push through higher prices for all brands due to the particular market situation, with the exception of South America. Now, there is a certain amount of pressure on prices due to weaker demand. This means that there are slight concessions in some cases, but overall, we are keeping prices stable.
What minor concessions are you making?
Service options are one of the possibilities.
MAN's strategic goal is an adjusted operating margin of 8%. In the first six months of 2024, it was 8.2%. Can 8% be achieved for the year as a whole despite the now more difficult market?
We do not expect the level of the first half of the year to be maintained in the second half. I expect MAN to achieve a margin in the region of the previous year.
There it was 7.3%. Is 8% only achievable at some point if the economy improves?
The strategic target describes our expectations over a more extended period. We will be announcing new targets for the Group and the brands at our Capital Markets Day on 1 October.
Will they be medium-term targets for the next three to five years?
That is the direction we are heading in.
Traton is aiming for an adjusted operating return on sales of 9% for the Group this year. Is this still the case after the 9.1% in the first half of the year?
Our forecast for the capital market is a range of 8% to 9%. As formulated at Capital Markets Day 2022, we are sticking to the 9% at the upper end of the range – assuming there are no further exogenous shocks. We have already discussed MAN's situation. After a weaker first half of the year, we expect Navistar to exceed the previous year's 6.6% for the year as a whole.
And the other two brands?
Scania will perform stably thanks to the mix, especially in Europe and South America, and Volkswagen Truck & Bus will continue to deliver a strong performance. Having different brands in different regions is a real value. In this context, the people in our Group with different cultures and perspectives are also an invaluable advantage.
Different cultures is a key phrase: The collaboration between MAN and Scania with their proud workforces has been developing more slowly than initially planned for years. Time and again, we hear of people working against each other rather than together.
Diverse teams are stronger teams. And diversity is by no means just about men and women. Our brands operate in many countries around the world in different cultures. This is the basis for diversity in the Traton Group. The different perspectives make us stronger.
Back to MAN and Scania: Taking advantage of the benefits of the alliance takes much longer than the previous management team around Andreas Renschler imagined eight or nine years ago.
We are not only undergoing an external transformation but also an internal one. It is in the nature of things that things will get bumpy sometimes. All in all, I see a perfect form of collaboration. Between all brands, by the way, not just between Scania and MAN. The CBE is the group's first actual product…
… a 13-litre diesel engine for heavy trucks and buses…
Now, we are taking the next big step by bringing together several thousand engineers in research and development for the group. Is there still room for more? Yes, we are currently creating the conditions for this. You could say that we are currently working intensively on Traton 2.0.
What is it about other than research and development?
Basically, we can further intensify cooperation in all areas. For example, I am looking with the finance and human resources directors to see where we can work together even better across brands. Specifically: Where can we standardize processes and standards, for example? In this way, we are gradually growing closer together and creating synergies.
Traton wants to use as many of the same parts as possible for electric trucks from all four brands, such as cabins, axles and battery systems in addition to engines. How far have you got with this?
This development is in full swing. It is part of our joint Traton Modular System, with which we are taking the collaboration between the brands to an entirely new level.
Regarding your shares: Oliver Blume, the CEO of Volkswagen, said at the end of May that VW was prepared to increase Traton's free float gradually. Could that give the share price a boost?
In discussions with investors, I have noticed that our equity story is falling on fertile ground. In this respect, there is generally a great deal of interest in Traton shares. A fundamental obstacle, as investors keep telling me, is the free float of 10.3%. That is why we received Oliver Blume's announcement very positively.
