Through its “Strategy 2020”, SAF-HOLLAND is targeting a combination of organic and external growth. Joint ventures, cooperations and acquisitions will be some of the measures taken to boost growth in new regions and with new products. By acquiring KLL, SAF-HOLLAND took an anticyclical approach to its strategy in South America. Although this region, with more than 400 million inhabitants, is struggling with a crisis, it will still be one of the fastest-growing transportation markets for the next several years.
Anyone flying into São Paulo can notice immediately that there is something amiss in Brazil’s transportation sector: the parking lots of the airport-based freight forwarders are filled with trucks lined up closely together. On weekdays, these parking lots are usually empty because all of the vehicles are in use. Even people leaving São Paulo for the port city of Santos can see signs of crisis everywhere. Although São Paulo’s Anchieta freeway runs through Brazil’s highest industrialized region, many companies are closed with For Sale signs posted on their factory gates. Automakers such as Volkswagen and Mercedes have factory yards filled with unsold vehicles. Even traffic jams are rare. Brazil is in a severe economic crisis. The country’s gross domestic product has declined by 7% since 2014. The transportation sector is also feeling the recession. While in 2011, a total of 207,400 trucks and buses were sold in Brazil, five years later the manufacturers association Anfavea estimates only 67,000 have been sold – a drop of 67%.
“The market for air suspensions is still at a very early stage in Brazil, but the trend is irreversible.”
Juarez Keiserman, Managing Director of KLL
One might conclude that the land of the Amazon may have lost its lure for investors in the transportation sector. Not true in the case of SAF-HOLLAND who has acquired a 57.5% stake in the Brazilian company KLL Equipamentos para Transporte Ltda in 2016. The manufacturer of suspension systems for trucks, buses and trailers is based in Alvorada, Rio Grande do Sul – right next to the headquarters of Brazil’s large freight forwarders and several truck suppliers. Rogério Ramos, Managing Director of SAF-HOLLAND’s Brazilian subsidiary, believes this crisis offers a perfect opportunity to strengthen the Group’s market position in South America: “We are deliberately making an anti-cyclical investment in the largest transportation market in South America boasting more than 200 million inhabitants.”
By acquiring KLL, SAF-HOLLAND has gained much broader access to the Brazilian market than it could have achieved alone. “With KLL, we can enter into business with truck manufacturers directly,” explains Ramos. KLL’s long track record in the industry means it can deliver straight to leading bus and truck manufacturers. Both suppliers are planning a joint expansion, especially in the market for air suspension systems for trucks and buses. “The market for air suspensions in Brazil is still at a very early stage,” noted Juarez Keiserman, founder of KLL 28 years ago, and now a top executive of the combined entity of KLL and SAF-HOLLAND Group. Trucks with squeaky flat springs are still commonplace on Brazil’s highways. Only around 16% of Brazil’s trucks are currently equipped with air suspensions. In the European Union, this figure is 95%. Still, Keiserman is optimistic: “The trend is not reversible, even in Brazil.”
Keiserman and Ramos are currently examining how SAF-HOLLAND and KLL in Brazil can integrate their production and raise efficiency. SAF-HOLLAND has had its own production plant in Brazil for the past ten years. At the location in Jaguariúna, 130 kilometers from São Paulo, the Group has mainly been producing axles. KLL is significantly larger: The production plant in Southern Brazil is located on a campus the size of seven soccer fields. The location had 340 employees until 2013. Now there are just 200. KLL has also been caught up in the crisis. The production of suspensions for trailer axles has dropped almost two-thirds. “At the same time, we even managed to increase our market share,” says Keiserman.
Now, with the companies’ combined product portfolio, Ramos hopes that market share will increase significantly faster with the next economic recovery. “We can offer our entire U.S. and European product range in Brazil”, says Ramos. “We can now tailor our product range to meet the demands of the local market.” Because the conditions in Brazil are different from those in Europe: The roads are far worse. Large parts of the Brazilian highway network consist of two-lane roads full of potholes. Many routes are on unpaved roads. Because of the country’s size, quality service in repair shops is ensured only in coastal urban areas. “We have to ‘tropicalize’ the products from Europe,” says Keiserman. This opens up additional market potential for SAF-HOLLAND in Brazil given the Group’s plans to develop products in Brazil, which could also be sold in other emerging markets with similar requirements and infrastructure.
“Truck operators will start investing in their fleets again at the first hint of stabilization.”
Rogério Ramos, Managing Director of SAF-HOLLAND do Brasil
After years of crisis, the Brazilian market may also see a recovery soon thanks to falling interest rates. In 2017, the economy is expected to grow again slightly. The crisis has led to a perceptible increase in the average age of the truck fleet. Ramos predicts: “Truck operators will start investing in their fleets again at the first hint of stabilization.” Experts from the Anfavea vehicle association expect growth in the commercial vehicle market to sharply outpace that of the economy as a whole. The industry is looking for 10% growth in the commercial vehicle market in 2017. “We are optimistic,” said one dealer from a large commercial vehicle brand. “For the first time in a long time, we are receiving customer inquiries.”