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Slow economy leads to poor demand for CVs

Reflecting the decline in economic activity, truck rentals have also declined substantially during the last few months, according to Indian Foundation of Transport Research & Training (IFTRT).

Published: 16th August 2019 08:31 AM  |   Last Updated: 16th August 2019 08:31 AM   |  A+A-

Economic slowdown.

Express News Service

Slowing economic activity and the consequent slowing of freight movement, combined with regulatory tweaks over the last few quarters and narrowing access to credit has hard hit the commercial vehicle (CV) segment. While domestic sales in the segment have fallen for the fourth straight month in July, with muted sales extending across the whole of last year, the pace of demand contraction has been steadily accelerating since the beginning of this financial year. 

In fact, data from the Society of Indian Automobile Manufacturers (SIAM) shows that CV sales have fallen by a cumulative 13.56 per cent during the first four months of FY 2019-20, as compared to the same period of the previous year.

This is the worst dip in demand witnessed by the sector in nearly five years. In July alone, the domestic sales in the segment recorded a whopping 26 per cent decline, with medium and heavy CVs (M&HCV) and light CVs (LCV) demand plunging by 37 per cent and 19 per cent respectively. 

Manufacturers have put the blame squarely on an extremely challenging environment. “The market continues to exhibit subdued demand sentiment as customers are postponing purchases given the poor freight availability, the falling freight rates impacting their viability.

The slowing economy, excess capacity created on account of increased axle load norm, slowdown in execution of infrastructure projects over the past few quarters, drop in discretionary consumption, and poor liquidity conditions in tight financing environment have led to severe contraction in total industry volumes across segments,” according to a segment leader, Tata Motors.  

Tata Motors’ CV unit registered a 36 per cent drop in sales during July, while rivals Mahindra & Mahindra (M&M) and Ashok Leyland saw CV sales decline by 17 per cent and 8 per cent respectively. 

“CV demand especially has come under a lot of stress over the past few months. The NBFC liquidity crisis which began with the IL&FS collapse led to a severe narrowing of financing channels for fleet owners, who depend on credit from NBFCs a lot. Late last year, the government also revised axle load norms, which permitted trucks to carry heavier loads than permitted earlier, which effectively removed around 20-25 per cent of demand from the market,” said Vinnie Mehta, DG, Automotive Component Manufacturers Association (ACMA). 

Reflecting the decline in economic activity, truck rentals have also declined substantially during the last few months, according to Indian Foundation of Transport Research & Training (IFTRT). The foundation noted truck rentals on trunk route round trips have fallen by a sharp 25-30 per cent and overall rentals by 12.5-18 per cent over the last three quarters.

During the period, cargo offerings from agri-producers were weaker by 10-15 per cent while those from micro, small and medium enterprises factory gates recorded a 25-30 per cent drop, said S P Singh, coordinator, IFTRT.

“The industry needs stimuli to help revive consumer demand and conversions. We hope that the overall buying sentiment will improve in the run-up to the festive season and with the monsoon turning out to be better than anticipated,”  said Veejay Ram Nakra, chief of sales and marketing, automotive division, M&M Ltd.



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