The international locomotive market was significantly affected by the economic downturn in 2008-2010. Many operators chose to rehabilitate the old locomotives instead of acquiring new ones. A ray of sunshine for major suppliers came from Russia, who opened its market for foreign manufacturers. Companies such as Alstom or Siemens signed valuable contracts with the national Russian operator RZD. At the same time, American suppliers continue to expand on the European and Eurasian markets. EMD’s takeover by the giant Caterpillar was a sign that the locomotive market has a significant long-term potential. What is the strategy of American manufacturers and what new marketing approaches will they take in order to recover the technological drawback which separates them from their European competitors? What impact will the CAT expansion have on the European locomotive market?
The high value of the transaction made between Electro Motive Diesel (EMD), the largest manufacturer of diesel-electric locomotives in the world, and Caterpillar (CAT), world leader in the manufacture of industrial equipment for constructions and mining activities, as well as of diesel engines and gas turbines, says a lot about the expectations of North-American companies for the international railway market. The contract was valued at over USD 820 Million, a rather large amount considering the economic crisis which affected the US as well. Caterpillar’s most conclusive ambition was expressed by its CEO, Doug Oberhelman: “This takeover represents a new stage in our strategic plan to expand on the international railway market. The railways have proven to be a very effective way of providing passenger and freight mobility. CAT sees a high potential for long-term business development in the railway industry”.
Until 2005, EMD was part of General Motors and, of all the US rolling stock suppliers it holds the strongest position on the European market. The strongest advantage for its expansion on the European market is Class 66 locomotives, which are already part of the rolling stock fleet of major private operators in the UK, Germany, France and Poland.
CAT officials did not wish to reveal any details about the company’s future strategy for the European railway market. However, analysts estimate that the evolution of the company will resemble that of Bombardier. From the very beginning, the Canadian company took over some of the largest national railway operators and rapidly took over the UK by launching products designed especially for the British market and then the continental market and by building the first production units in Europe. This strategy would come into conflict with that of its rival, GE Transportation, who prefers emerging markets, India, China, South Africa to the detriment of the European market. GE has showed more interest in the CIS region, where it has recently established the first collaboration with the local authorities in terms of locomotive supply, by signing contracts in Kazakhstan (the contract also includes the construction of a locomotive manufacturing facility) or Uzbekistan.
American suppliers, less American in approaching locomotive supply marketing
What would be the key of success which allows US suppliers to compete with large European groups on the locomotive market? If you’d expected a typically American approach based on strong and reliable products, but which are also highly polluting and have a high fuel consumption, you would be wrong. And proof of this is General Electric, which promotes its Evolution Class locomotives. According to the company, this is the less polluting diesel locomotive in its class at global level. The manufacturer constantly invests in new technologies meant to bring a competitive advantage in energy consumption and level of emissions generated.
However, the demand for locomotives continues to be unstable in Europe and Asia because of the financial deadlock. European manufacturers focus their development policies on providing quality products at low prices and in a very short timeframe. In order to do so, it is vital to develop a dense network of production facilities, based on the recent success of Alstom and Siemens, which signed major contracts with RZD and decided to manufacture locomotives in Russian facilities. This initiative hasn’t yet caught on with American suppliers, which continue to manufacture their locomotives in the US. From this point of view, the European manufacturers don’t have to worry about their dominance on the European and CIS markets. However, the fact that Caterpillar took over the most “European” American manufacturer shows the increasing interest of large American industrial companies for the European railway market.
by Alin Lupulescu
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