After over two years of negative growth, the Indian commercial vehicle (CV) segment has begun seeing a positive change in demand and sales. Even though overall sales are still in negative territory, manufacturers are hoping that the worst is behind them. Incidentally, CVs were the only segment to post a fall in August 2014. The segment sold 55,575 units in August 2014, recording a 4.3 per cent drop compared to the same period last year. The segment registered a decline of 19.7 per cent in 2013-14 after recording a 2 per cent decline in 2012-13. But, the month of August saw a positive change. The medium and heavy CV segment recorded a growth rate of 20 per cent in August 2014, which was the first positive development in over 30 months.
Much like everything else, CV sales too are dependent on the state of the economy. “Our key concern is the commercial vehicles segment. It is still in the negative territory, although growth is coming back in the category,” says Vishnu Mathur, director-general of automobile trade body Society of Indian Automobile Manufacturers (Siam), after releasing the data on sales trends for the month of August. Still cautious, Mathur hopes that the resumption of mining and infrastructure spending should lead to improvement in the segment, even though it may not end up in positive growth immediately. He notes that there’s some upward movement in freight as well.
Schemes like the Jawaharlal Nehru Urban Renewal Mission have helped with the recovery process for large CV makers. Ashok Leyland Limited, for instance, has received an order for 4,000 buses while Tata Motors received an order for 2,700 buses under the central government plan for increasing urban public transport. Previous finance minister
P Chidambaram’s Budget 2013 had announced the purchase of 10,000 buses under the renewal scheme for FY14 and earmarked Rs 14,873 crore for the purpose. According to the former minister, a total of 14,000 buses were sanctioned from 2009 to 2012.
“Public policy has had a positive effect on us but we still have to wait and watch if there will be a turn around in the CV segment,” notes Akash Passey, senior vice-president, Volvo (Bus) International. The Swedish major has sold over 5,000 buses in India after commencing operations in 2001. But many of the orders for CVs (other than buses) are coming from private entities. According to manufacturers, over two years of subdued purchases have led to pent up demand. This is because customers were waiting for the new government and an increase in economic activity before committing to a CV purchase.
Ashok Leyland, which is one of India’s largest CV makers, saw its overall sales grow by 16.69 per cent and its medium and heavy CV segment increase by 18.04 per cent. The other big CV maker, Tata Motors, saw a rise of 10.81 per cent in segment sales but the company’s overall sales (domestic) went down -23 per cent. “In my opinion, there is a positive sentiment. But, the smaller segments are still struggling,” says Sandeep Agarwal, vice-president (Global ICV trucks) at Ashok Leyland. Stating that infrastructure activity impacts tippers and haulage trucks, he says the current scenario did indicate an upward movement for the entire CV segment. “Growth is already there and by next month (Q3) we will be in positive territory,” he adds.
Intermediate CVs, however, have seen a drop from 19,900 units (April-August 2013) to 13,900 units (April-August 2014). Agarwal says financiers were not readily coming forward for smaller CVs. Experts have identified high interest rates as a big influencer in automobile purchases. In the interim budget 2014, the excise on CVs was reduced from 12 per cent to 8 per cent, which was continued by the NDA government till December 31, 2014.
“In trucks, mining and coal are coming back, so we are hopeful. Optimism that things will improve came after the general elections, which then pushed up business confidence,” says Anders Grundströmer, managing director, Scania India and senior vice-president, Scania Group. The Swedish company set up its plant in Karnataka with an investment of Rs 250 crore with a capacity to produce 2,500 heavy haulage trucks and 1,000 buses annually.“The CV segment was very low last year, but it is doing well since August,” says Grundströmer.
In the last couple of years, many major infrastructure projects have been stalled resulting in lower demand for CVs. Manufacturers believe sales will start picking up with clearances for big-ticket infrastructure projects. “Tippers and haulage trucks have gone down a bit. On road CVs are not so bad,” comments A Ramasubramanian, president, Asia MotorWorks (AMW), adding that the recent decisions on infrastructure seem to be a positive indication of things to come.
He adds that heavy duty vehicles depend on freight but that segment continues to be low. He also notes that when the demand starts to rise, it will be “sudden and heavy” for CV makers. “There has been pent-up demand for the last two years, and CV makers will have to be prepared with stocks for large orders that may suddenly start to come,” predicts Ramasubramanian.
A recent report by Munich-based global consulting firm Roland Berger states that the trend could be temporary as LCVs or small CVs have great potential to grow here. The firm has estimated that the largest chunk of the industry, which is the small commercial vehicle (SCV) segment, will grow at 13 per cent till FY20.The report further adds that just this segment sold 4,32,000 units in FY14, accounting for nearly 60 per cent of the overall industry. “The OEMs in the SCV segment need to focus on creating demand for the vehicles by developing newer applications. They also need to understand their customers’ needs and liaise with government authorities in order to promote SCV passengers,” says Wilfried Aulbur, managing partner at the consulting major.
Happily, what they have lacked in domestic sales, companies have made up for with exports. These were up by 16.51 per cent in the period from April-August 2014. Interestingly, CV exports closed FY14 with a de-growth of -3.71 per cent. The big producers have focused on emerging markets like Latin America, Africa and the Middle East for their exports to make up for the lack of demand in the domestic market.
According to Grundströmer, the new Motor Vehicles Bill will help India come at par with European standards. This will make it easier for purchase of premium segment trucks and buses. “I believe that within the next five years, India will see more advanced trucks on the roads with proposed changes like the Motor Vehicle Bill,” he points out. “Driving conditions are impeding higher sales of premium vehicles,” he ads.