Caterpillar is facing a strong competition in large excavator business

As the No. 1 foreign brand in China's excavation machinery market, Caterpillar (NYSE: CAT)'s market share has risen year after year, but it is a little troubled by the new variables that have emerged in this fertile soil that has been cultivated for more than 40 years.

According to the latest statistics from the CCMA Excavation Machinery Branch, from January to April 2018, among the top ten models of large excavation sales in China, Caterpillar and Sany Heavy Industry each had three products selected, and XCMG Group (hereinafter referred to as XCMG) had two products. Products selected, Komatsu China (Japan) and Volvo (Sweden) each have one product selected.

The rise of Chinese brands represented by Sany Heavy Industry has broken the absolute monopoly of foreign brands such as Caterpillar in the high-end market.

According to the quality of the whole machine, excavators can be divided into five types of micro excavation (100 tons). Small excavation is mainly used in urban construction, "machine replacement" and other fields; large and medium excavation are mainly used in mining, infrastructure construction and other fields.

Due to the high technical threshold and the need for a longer time for market brand recognition, the market was more occupied by European, American, Japanese and domestic leading companies.

"In the 30-40-ton digging market, Caterpillar and Sany Heavy Industry are very strong,and the former is inevitably challenged by domestic brands in the high-end market," said an industry insider who did not want to be named , "The competition between the two sides is mainly concentrated in the excavator market of 6 tons, 20 tons, 30 tons and 40 tons." The person has 16 years of experience in the construction machinery industry.

In the field of 30-ton excavators, SANY has certain advantages, and XCMG also has a place. Before 2002, there were no domestic brands in the excavator market. The brand pattern in the past three years shows that domestic brands accounted for about 50% of the market share. From January to April 2018, the market share of excavators of domestic brands exceeded 50%, reaching 53.1%.

Chen Nengsong, deputy secretary general of the Information Working Committee of China Construction Machinery Industry Association, told Jiemian News that the current market share of domestic excavator brands exceeds 50%. , China's own brands have more space to grow.

In the market of 80 tons and above, domestic brands have made many attempts in recent years. In April 2018, the XCMG XE7000E excavator with a tonnage of 700 tons was officially launched, becoming the largest excavator in China. XCMG has previously released extra-large excavations of 130 tons, 300 tons and 400 tons.

"But if the 40-ton class goes up, the advantages of domestic brands are less obvious, and the market is still dominated by Caterpillar, Volvo and Komatsu," said the anonymous source. Although domestic brands have made great progress, the 80-ton and above market is basically occupied by foreign brands - Komatsu, Caterpillar and Hitachi. The value of a single product in this market is very high, and the market share is very small, so it is not a stage of scale competition.

In contrast, domestic brands have a higher market share in the small mining market, and foreign brands basically have no advantage.

Since Caterpillar officially entered the Chinese market in 1994, it has positioned itself in the high-end market of excavator products, and therefore its market share has not been high.

From 2008 to 2017, the share of domestic brands in China's excavator market increased from 22.2% to 50.2%.

Many analysts told Jiemian News that domestic brands mainly occupy the market of Japanese and Korean brands, and the impact on the old American manufacturer Caterpillar is temporarily limited.

From 2008 to 2017, the market share of European and American brands increased from 11.1% to 16.9%, and the market share of Japanese brands fell from 38.5% to 21.5%; the market share of Korean brands also fell from 28.3% to 11.4%.

"The market positioning is different. Caterpillar and Komatsu are widely recognized high-end machinery brands in the industry," Fu Chao said. Fu Chao used to work in Xinchang Machinery Engineering Co., Ltd. (hereinafter referred to as Xinchang Machinery). Xinchang Machinery is one of the four original Caterpillar agents. It has more than 2,000 employees in six southern China provinces, Xinjiang, Hong Kong and Macao, and has 80 business locations.

"For example, the competitor Mercedes-Benz is worried about is definitely BMW, and it is not likely to worry about Great Wall, SAIC and Wuling, although their market share has increased very quickly." Fu Chao believes that Caterpillar does not need to be too worried about local Chinese brands rise.

Founded in 1925, Caterpillar was formed by the merger of Best and Holt, two track tractor companies, when a layman compared the tractor's tracks to a caterpillar (Caterpillar). Stimulated by the domestic demand brought about by World War II and the Marshall Plan, Caterpillar ushered in a period of rapid development at full capacity and gradually became the world's largest manufacturer of construction machinery and mining equipment.

In the mid-1970s, Caterpillar first completed the sale of 38 pipelayers to the Chinese market and established a sales office in Beijing; in the 1980s, it began to transfer technology to Chinese state-owned enterprises; in the 1990s, Caterpillar began to establish in China factories, producing products and developing independent agents.

In 2009, stimulated by the dividends of the "four trillion" investment, the market share of domestic brands under the tuyere continued to rise. In 2011, it created a peak of annual sales of 170,000 units, and domestic brands won nearly half of the market share. At the same time, Sany Heavy Industry surpassed the Japanese manufacturer Komatsu Group for the first time and won the first position in the market share.

In 2013, Caterpillar exhibited more cost-effective D2 series excavators, D2GC excavators and GC series loaders in Beijing. In particular, D2GC excavator products are very attractive to Chinese users in terms of price, and the price is 10%-20% lower. Caterpillar, which lowered the threshold, gained heavy volume growth and replaced Komatsu to become the second in the industry and the first for foreign brands that year, and it has remained so until now.

Then the economy entered a new normal, the growth rate of infrastructure decreased, and the crowding effect caused by peak sales, China's excavation machinery sales fell for four consecutive years since 2012.

From January to April 2018, the former "overlord" Komatsu's market share in China's excavator market was only 5.9%. Komatsu, which entered China nearly 20 years earlier than Caterpillar, has dominated the Chinese excavator market for three consecutive years.

However, Komatsu, whose market share of new machines has been declining year by year, has not focused on the increment of new machines in recent years, but has begun to focus on the aftermarket side, that is, the business development of second-hand excavators (Komatsu cycle machines). The cumulative number of Komatsu excavators in the Chinese market exceeds 200,000 units, which is an advantage that no company can match.

"After the excavator is out of warranty, 80% of customers are lost. This is because the manufacturer's spare parts or maintenance parts are expensive, and customers often choose to go to street shops and sub-manufacturers to buy parts," said the anonymous source. Said that Komatsu wants to "get back the customers of Komatsu excavators in the market".

Caterpillar, a 90-year-old veteran construction machinery and equipment manufacturer, realized that it is difficult to win in the Chinese market only by taking the high-end route, and the low-cost and low-end market should not be underestimated.

One of the reasons for Caterpillar's growth against the trend in China's excavator market is that it has launched more new products and users have more choices. "Chen Nengsong said.

According to data from the CCMA Excavation Machinery Branch, the market share of Caterpillar hydraulic excavators rose from less than 7% in 2012 to 14% in 2016, and remained at 13.2% in 2017.

In 2013, the GC series products were launched in the Chinese market, providing more cost-effective products for users in earthmoving (etc.) conditions. In 2017, a new generation of hydraulic excavators was launched, providing users with more choices and intelligent operation improvements. Yield and customer benefit, the market share increased rapidly. Providing different product options for users in different working conditions is one of the main reasons for the growth of Caterpillar's excavator business. At the same time, Caterpillar and its dealers jointly launched the "Cat360 Whole Process Peace of Mind" customer service plan to further enhance the customer experience. "Chen Nengsong thought.

In September 2017, Caterpillar chose to launch a new generation of Cat hydraulic excavators in Beijing, including three products: 320GC, 320 and 323. "Caterpillar wants to use 320GC to fight 20-ton domestic excavators," the above-mentioned industry insiders pointed out that the 320 and 323 released in the same period are 20%-30% more expensive than domestic brands.

The small digging market is basically covered by domestic brands. From January to April 2018, in the ranking of the top ten models of domestic small digging sales, Sany Heavy Industry occupies four places, XCMG occupies two places, and Liugong also has a place.

"The small excavation technology of domestic brands is relatively mature," said the above-mentioned industry insider, "but this 'maturity' is also relative. At present, domestic excavators are mostly assembled, and core components such as valves, pumps, and motors are still subject to foreign companies. , such as Japan's Kawasaki, Germany's Rexroth, etc."

From January to April 2018, Caterpillar's 320GC ranked ninth among the top ten models in domestic sales.

"Caterpillar's equipment is known for its high digging force, which is a huge advantage in the mining industry, but the construction market does not need that kind of digging force, but requires flexibility and speed."

There are also opinions in the industry that the price of GC series products for the Chinese market is close to the market, but the quality of the products has declined, which may lay a hidden danger for Caterpillar's brand image.

Fu Chao does not agree with the statement that the GC series is "low configuration". "This series is a product that better matches the purchasing power or actual needs of the Chinese market. It is a segmentation strategy, and the price is indeed more competitive."

"GC series" is not the only way for Caterpillar to extend beyond the high-end market. SEM under the dual-brand strategy is also an important part of its layout.

In 2008, Caterpillar acquired Shandong SEM Machinery Co., Ltd. (hereinafter referred to as SEM), a local Chinese enterprise, mainly producing wheel loaders. In 2012, SEM's main products included the diversification of wheel loaders into four product lines including graders, bulldozers and road rollers and other road machinery and equipment. In November 2013, SEM officially changed its name to Caterpillar (Qingzhou) Co., Ltd.

"The mechanical products of SEM are far behind Caterpillar's products in terms of durability, but the price is 30%-50% lower than that of Caterpillar," Fu Chao said. Caterpillar only defines SEM's products as "regional industry standards", which are specially established to meet the needs of specific users in specific regions.

It is worth noting that SEM's product brand is sold in the market with SEM as its subordinate brand, and does not use Cat's brand.

Caterpillar's original intention is to complement each other with SEM and the main brand to make up for its shortcomings in the low-end market. However, due to various reasons, the development of SEM was not as expected.

If you are familiar with the external market structure, it is not difficult to understand the current embarrassing situation of SEM. "It is not easy to do well in any of SEM's product lines, and the competition is too fierce."

China's loader market is very mature, and it is difficult for any company to shake it, including SEM. "In China's loader market ranking, Lingong, Liugong, Longgong and XCMG occupy the top four, which are basically unstoppable, and SEM can only fall back, probably the fifth and sixth positions," said the above-mentioned industry insiders. .

"The product price positioning of the loader itself is not high, and the average profit in the industry is relatively low. The original profit was more made up by the increase in volume, but now the industry decline has led to poor sales, and it is more difficult for loader products to be profitable than when the market was hot. ," Chen Nengsong pointed out.

However, some people in the industry pointed out that with the improvement of product quality and the reduction of price sensitivity of domestic loader users in the future, SEM has great potential in the long run. "Lingong, which was previously acquired by Volvo (with a 70% stake), was originally a loader company in the second camp, and it basically took the lead in the domestic loader industry within a few years after the acquisition."

In addition, in the field of bulldozers, Shantui's 70% market share is difficult to match; the scale of the field of graders is not large, and the market is difficult to expand. "Segong's advantage in road rollers is even less obvious. XCMG has done a good job. There are also many foreign brands in the market, such as Hummer and Bomag."

"It can only be said that Shan Gong's cards are too poor. There are no two kings and four twos. There may be at most two twos or three aces." The above-mentioned industry insiders are not without regret.

"Many employees at Caterpillar call SEM a 'problem chain'," Fu Chao tried to explain from business logic. "Being used to high-end brand business, it may be a little bit resistant to go into low-end brand business." .

In February this year, Caterpillar announced the latest sales policy in 2018: when customers purchase new Cat excavators over 10 tons, they can enjoy a loan period of as low as 10% down payment and up to 42 months.

"This means that a machine with a price of 2 million yuan can be dragged back by customers for 200,000 yuan," said the above-mentioned industry insider. There must be debt risks in low-price promotions. "Volvo rushed forward a few years ago, generating a lot of bad customers, and finally bled a lot of excavators through auctions."

This may be Caterpillar's strategy to pursue market share." He said that the customer's credit reporting system must be strong enough to control debts in order to avoid bad debts and dead debts, but Caterpillar's ability to control claims is also believed to be Excellent.

"Although foreign brands retain their value better because of the quality of their products, new machines will continue to depreciate after they are sold," he said. "If the operating rate is insufficient due to the influence of macro policies, users will not be able to pay their dues if they do not work, and they will be in debt. Problems will break out, and the excavator will need to be towed back and auctioned off."

GRH offers hydraulic components to excavators, pumps, valves and motors.