02/12/2018

2 December 2018
2 December 2018, Comments Comments Off on Martin Brandt – Erwin Hymer Group
Martin Brandt - Erwin Hymer Group

The man of the change

 
Following the news that the Erwin Hymer Group has been acquired by Thor industries, we met Martin Brandt (58), Chief Executive Officer and Member of the Executive Board of Erwin Hymer Group at its headquarters in Bad Waldsee, Germany, for a very interesting interview discussing his vision of the European market and possible future scenarios, plus the Group’s strategies in Europe, the United States and the Far East markets.

Words Antonio Mazzucchelli

With a Degree in Industrial Engineering from the University of Karlsruhe (TH), Martin Brandt joined the Erwin Hymer Group in August 2015. In January 2018 the Group’s Supervisory Board reappointed him as CEO for a further three years. Johannes Stegmaier, Chairman of the Supervisory Board, explained the decision: “Since his appointment as CEO of the Erwin Hymer Group, Martin Brandt has made an important contribution to the outstanding growth of the Erwin Hymer Group. Under his management, our group is developing into a successful company in the caravanning industry. We also believe that credit for the significantly stronger cohesion of the Erwin Hymer Group and its brands must go to Martin Brandt. With his reappointment, we are establishing the prerequisite for long‐term profitable growth and a successful future for our group.“ And never were these words more appropriate when in September 2018 Martin Brandt led the Erwin Hymer Group to become part of the largest global recreational vehicle group with the acquisition from Thor Industries in the USA. We had a great interview with him with a wealth of interesting details.

Aboutcamp BtoB: How do you envisage developing the European RV market? Is there a risk that excess production could reverse the growth trend?
Martin Brandt: We are currently in the process of doing our four year forecast. Last year, we asked an external company to undertake a market survey for us, and they came to almost the same conclusions that we had. I think the only difference was that we had sales of caravans a little bit higher. The survey had 189,000 leisure vehicles in the European market last year. This year it is more than 200,000 but the survey said in three years’ time, it will go up to 245,000, but nobody knows if that will really happen. In 2016 our growth was more than 30 percent, and last year it was 15 percent, but now we see that stock in the dealer network is high. The reason is, I think, because we (Hymer) have not had enough capacity to meet demand. We could have had more sales last year and the year before, but we did not have enough vehicles, and could not produce enough. We could not speed up our production. So, for example, if a dealer ordered 100 vehicles, he thinks he can sell 110, but he could only get 90 from us; then what will he do next year? He orders 130, even though he needs only 110, thinking that perhaps he will actually get 100 or 110. And that’s exactly what’s happening. We increased our capacity, so now dealers get what they have asked for. The market is still growing but the dealers have ordered too many vehicles. We usually have our dealer meetings in May or June when we introduce our new products, and then they order the vehicles. When we start our financial year in September, we have perhaps 30 percent of our orders for next year. Then, after the CSD (Caravan Salon Düsseldorf), and all the exhibitions in the different countries, the dealers have a better feeling for demand and they order from us again. Then, by about November or December, we have received about 70 to 80 percent of our orders. In the last few years, to get the vehicles they need, dealers placed orders in January before we have introduced the new products that year. This year, they ordered in June or July, so we have come back to the normal cycle.

Aboutcamp BtoB: How do you manage your production?
Martin Brandt: We have a flexible production system and we would like to produce around 10,000 models this financial year. I think the market will slow down a little bit this year, so we decreased our capacity in September, October and November at all our production sites, across our different brands. We will increase the production again in the spring. In this way, we don’t over-produce. The decision about how many we will produce in the spring will be made in November or December when we have received our order intake. At the moment, it looks like we have received orders, so hopefully we can increase production to have the same numbers as in our plan. Our problem was that the production line was on one shift, but the pre-production was on three shifts when I joined; but it was not flexible enough, so we now have both the preproduction and production lines working on shifts, currently between 1.5 and two shifts, which we can decrease or increase. If we get more orders, we can increase them to three shifts until we invest in additional machinery, or if it decreases, we can go back to one or two shifts. The workforce usually have a 35 hour working week, but this can go down to 28 hours or up to 42, or sometimes 45.

Aboutcamp BtoB: In Europe, the war against pollution is increasingly leading to the banning of diesel engines: what consequences will there be for you from this in the medium to long term?
Martin Brandt: In the short term, it is a problem, but, to be honest, when I was at the last Caravan Salon in Düsseldorf, I was very surprised there wasn’t a lot of discussion about this when I talked to dealers. I can give you one example; a dealer told me he’d had a customer who said if he bought this diesel model, maybe he would not be allowed to drive it; but before he could answer, the customer said, “but, anyway, I do not drive in to the cities and they are not banned on campsites, so I am not worried”. I think this is how the majority of customers think, but, of course, we have to think about alternatives. We can’t say that diesel will last forever. That’s not true.

Aboutcamp BtoB: Will the motorhome market always be dependent on the supply of existing chassis, or can very high production numbers justify the creation of a dedicated mechanical base?
Martin Brandt: This is a very interesting question, and I have to be careful how I answer. So, firstly, we have this regulation of 3.5 tonnes here, so we always have to try to keep the weight of our vehicles down. We have developed a lightweight chassis which we will produce on our own. The second thing is, if you look at alternative engines, we have diesel engines now, but what we don’t know what is in the future? An electric engine is not possible at the moment because the batteries are not enough. The OEMs are looking at hydrids, but the hybrid is not possible because of the weight. We have to find different things. Let’s assume we have an electric engine with the battery technology so we can drive 600km or 700km. Then the question is: do you really need an OEM for the chassis? If you don’t have a gearbox, or a diesel engine, you just have a chassis and an electric engine that you just put together.

Aboutcamp BtoB: Beyond the chassis, do you think it is useful for a very large industry group to still use external producers of components and furniture, or do you think it is better to produce everything on your own?
Martin Brandt: If you look at our cost structure, we have a material cost of 70 percent now, so our added value is only 30 percent, and we also have a variety of models, but you have to be very careful what you do on your own and what you buy. Our philosophy is that this is not a ‘black and white’ decision. For example: we buy furniture as well as producing it on our own. We have this dual strategy so that we also have a little bit of negotiation power against the suppliers. When you make your own furniture, you know how furniture is produced, so we know how to talk to suppliers. In the future, we would like to produce part of the major components ourselves, and buy some as well. We will not produce 100 percent of our own components, but also we will not purchase 100 percent. It can be a problem for us if a supplier has a large market share. For example, Truma has about an 80 percent share of the heating market. This means our negotiation power is a bit limited, and then if they do any innovation, the whole industry has it, so you can’t differentiate yourself from your competitors.  This is a problem. We don’t have other businesses such as Miele or Liebherr supplying our industry. Why? Because we were a very small industry with a lot of variations, so it was not interesting for these companies to invest in it. Instead, some smaller companies went in to this niche and they have grown as the market has grown. We will have to see what will happen in the future. If we grow more, perhaps we will be more interesting for the likes of Miele and Liebherr, and then we will have some more competition on the supplier’s side.

Aboutcamp BtoB: In the RV sector, there are many differences between America and Europe: differences in laws, customs and regulations, plus differences in the products. What synergies could there be for you in these two different worlds?
Martin Brandt: The first synergy is, of course, purchasing. We have the same suppliers, like Truma, Dometic and Thetford in the US and in Europe. We make a total of 60,000 vehicles per year and Thor makes 240,000 per year, so together we have better power towards our suppliers. The second synergy is in technology. There were not many changes in our industry in the last 30 years, but now things are changing. We have the first autonomous driving RV in Canada and as a group we’ve invested a lot here. We have a lot of investments and resources and, of course, together we have more resources than alone. There are not so many synergies in terms of products: we cannot take products from the US and sell them in Europe; but our strategy with EHG (Erwin Hymer Group) North America was to bring European design to the US market. Of course we had to fit to the US regulations, but from a design, technology and quality point of view, they are European products. We will continue to concentrate on bringing European design to the US market as we think we can get different customers, and we have a great synergy because we can sell our European vehicles through the Thor vehicle network. EHG North America will still exist in the future and not be part of the US organisation.

Aboutcamp BtoB: A lot of people believe there is a limit beyond which group synergies become impossible, or not very advantageous: with the giant group created by Thor Industries and Erwin Hymer Group joining together, is this limit exceeded?
Martin Brandt: The rationale for why Thor bought us was that it had only been operating in the US and was a bit worried about Europe’s different cultures, languages, products and regulations. To enter the European market, it said it would have to buy two or three companies and then manage them, which is not easy from the US. However, with EHG, it gets one company and one group with management that they trust, so with one purchase they have covered the whole of Europe. We are market leader. Thor is close to a 50 percent market share in US so growing any further in the US is not easy. The best way for Thor to grow was to buy new companies.

Aboutcamp BtoB: Does your experience with Erwin Hymer Group North America make you think there is an important market for compact European-style vehicles in USA?
Martin Brandt: Absolutely. We are strong in Europe and, of course, we would still like to grow in Europe, but the US market is double the size of the market here, so we said we would also like to be in the North American market. We thought it wasn’t good enough to have just a ‘me-too’ product, or the same that the US market already has. We wanted to be different. When we bought Roadtrek, they had 70 dealers in North America, and now we have more than 300. With the new brands we brought in to the US, like Roadtrek, Carado and Sunlight, we could get new US dealers as we have different products. Dealers can offer different products to customers who are interested in European design; of course, this will be not all of the 300 million people in the US, or even half of them, but there is a certain percentage who love European design. It’s a niche, mostly concentrated on the west and east coast, but our campervans, have a 40 percent market share in North America.

Aboutcamp BtoB: Did Roadtrek change their models when the Hymer Group bought them, or did they continue to do their own?
Martin Brandt: When I first met Jim Hammill, the CEO of Roadtrek, we discussed plans for the US. He taught me that they had 30-40 percent market share in campervans and would like to extend their product range, but that needed investment in design and development. He said he also needed to have a different brand to grow the dealer network.We had discussions with the former owner, but he didn’t want to invest in this new era, so I said: “we can grow Roadtrek more than you can”. When we bought it. I said to Jim Hammil: “look at all our products, and choose what you want.” When he chose the Eriba Touring, our small caravan, I said: “Can you sell that in US?” He said: “yes, this is like the Beetle, this is heritage, it is an icon, so I will sell it with a European heritage.” We also extended the motorhome range from B-class to C-class, and introduced Hymer, Sunlight and Carado to the US, so he could extend the dealer network. They still sell their Roadtrek products and have not changed them, but they have extended the campervan range with entry models, plus other products in the caravan and B and C-class motorhomes.

Aboutcamp BtoB: Will you remain faithful to current your philosophy or do you plan to build maxi-motorhomes too?
Martin Brandt: We stay with our philosophy. When we bought Roadtrek we had $500,000 dollars sales in US, and we now have $300 million. We have a five year plan to grow it to $500 million. We will concentrate on our European design, and will play a big role in this niche. This is our role in the Thor group. It makes no sense to make a competitor to an Airstream or Jayco. We will stay in the European-style niche.

Aboutcamp BtoB: In Europe, the caravan market is going down and the motorhome market is going up. In the United States it is different. The motorhome is a niche at the moment, and trailers and caravans are the big market.
Martin Brandt: That is true, but we think motorcaravans and campervans will grow in the US. We see the US market slowing down a little bit now, but not the campervan market, it is still growing. They have different customers. The majority of campervan buyers in the US are single women.

Aboutcamp BtoB: What is your vision for the market in China, and what role could the new industrial grouping play in this scenario?
Martin Brandt: The Erwin Hymer Group has already been selling in Asia for many years. We are the number one importer in Japan and Korea. We have also been selling in China, so we recently announced a joint venture in China, because there is a big opportunity there. If a motorcaravan costs 50,000 Euros in Europe, it is 100,000 Euros in China, but even then, we have sold about 1,000 vehicles there. This is not bad, but we decided it was time to produce in China, and we found a partner, the Lingyu Group in the Henan Province. It took us time to find this partner. They were manufacturing caravans on a small scale but we will build a new factory for caravans and motorhomes with an Iveco chassis as they are very strong in China. We spoke to Fiat, but they don’t really want to invest there, nor Mercedes; Ford is building a chassis there, but we feel Iveco is the best for us. At the moment the market is small, I think 25,000 vehicles per year, but the Chinese government is investing in camping sites and infrastructure. To be honest, when I started at EHG three years ago, after my experience of living in Asia for three years, I didn’t think there would be a market for caravanning in China because Chinese people usually travel in groups, and a caravan is more for when you go with your wife or as an individual; but they rent three or four caravans and go with the whole family and friends, and cook together and be outside, so they have the same family feeling that we like. The Chinese government would like more Chinese people to have holidays in China. They would also like to attract people from Australia, the US and Europe to holiday in China. This is why they are investing in hotels, airports and also camping sites. There will definitely be a market in China. It could be a very big for us, or it could be that it stays small, but our strategy is to be in it because there are also Chinese competitors growing up, and I think it’s good to compete against them in China before they are very big and come to Europe.