Serving the World's Largest Emerging Automobile Market
Home > Heavy Duty > Reasons behind the struggle of special-purpose vehicle makers in China

Reasons behind the struggle of special-purpose vehicle makers in China

Special-purpose vehicles started to develop rapidly in the year 2000 and reached an output of 1.6 million units in 2013, accounting for 55 percent of total truck output that year. Output of semi-trailers, stake trucks, self-dumpers, tankers and box vehicles totaled 1.24 million units. About 5,000 types of special-purposes vehicles are available on the market.

However, the special-purpose vehicle market has experienced a development downturn due to multiple reasons, such as oversupply, unfavorable operational conditions and poor enterprise management.

Misunderstanding of market demand

Special-purpose vehicles on average account for 70 percent of the truck market in Europe and the U.S. with over 7,000 different types of products. In China, the proportion was only 30 percent and product variety numbered only 3,000 about a dozen years ago. Truck makers thus predicted that demand would surge.

It is important to learn from overseas countries in terms of product and technology, however, this partial understanding disregarded China’s differences in market environment and companies blindly invested in the production of special-purpose vehicles.

For example, in the European and American countries, the operation of school buses are guided by the government and well accepted by the general public. China started to promote school buses in 2012 with some experts predicting demand would exceed 10,000 units in each province. Bus makers then rushed into the pool and all tried to cut a slice of the pie. However, given the current economic level of the country, most local governments are not capable of purchasing and operating school buses. Most parents are still transporting their children by bicycles, low-speed electric vehicles, or motor tricycles. With huge expectations and poor demand, it will take a long path for school buses to popularize in China.

Rushing to build plants

Special-purpose vehicles have covered all aspects of economic and social life and are key to logistics transportation, energy construction, road construction and maintenance, urban and rural construction, sanitation, medical treatment, public security, airport and military use. However, with the misleading perception that there are “enormous” market opportunities, private investors, central enterprises, local state-owned enterprises, large business groups and OEMs all have invested in special-purpose vehicle production with most of them private investors. The number of special-purpose vehicle “capitals,” “bases,” “parks” and “homes” sprung up all over China with some even dubbing themselves “global special-purpose vehicle aircraft carriers.” 

In fact, less than one-fifth of special-purpose vehicle makers are listed on the official national vehicle catalogue, while over 80 percent are medium and small enterprises with products focusing on low-end semi-trailers, self-dumpers, tankers, stake trucks and vans.

Due to overcapacity, these manufacturers had to reduce prices to attract more orders, or produce vehicles out of specification to meet customer demand. For example, semi-trailers that are over 30-meter long that can transport 20 cars at a time.

Market entry based on own capabilities

Most owners of private low-end special-purpose vehicle makers originated from industries such as automobile repair, sales, transport, steel sales, real estate or even agricultural product purchasing and processing trade. Without management skills and limited by personal experience, capability and foresight, these companies could only make low value-added products with low technical content.

With very thin margins, most of these companies do not have the necessary capital to upgrade products, which usually result in vicious cycles of economic woes.

Counterfeiting is also a major problem, as new products and technologies are often copied by competitors just a few months after market launch, as most makers are not willing to invest in product innovation.

About 15 years ago, at least 150,000 newly sold semi-trailers were used for trans-provincial coal transportation annually. However, as ultra-high voltage power transmission has been well applied in transporting coals, demand for semi-trailers has dropped significantly. As train transport becomes more mature, a long train can replace 570 semi-trailers in transport capability and the cost of train transport is 40 percent lower than that of road transport.

Moreover, as the country is reinforcing in tackling overloading, it is much more difficult for special-purpose vehicle makers to sell illegal vehicles. With financing difficulty being intensified and rising emissions standards, small special-purpose vehicle makers can hardly survive in the future. There will be increasing consolidation and only those with real quality and innovative capability can survive the competition. 

(Rewritten by Jennifer Chen based on author’s article in China Automotive News)

| | | |

Leave a Reply