Economic slowdown and stalled policy decisions around core sectors like mining have hit sales hard in India’s medium and heavy commercial vehicle (M/HCV) segment, with the industry slipping into the negative across the three quarters of the current financial year. Slow sales have prompted India’s truck OEMs and industry body Society of Indian Automobile Manufacturers (SIAM) to seek relief measures from the government.
Sales in the M/HCV category have been in continuous decline since the beginning of this financial year. While year-on-year volumes were down 11.6% in April 2012, the fall was 10.6% in May, 13.6% in June, 14.8% in July, 8.9% in August, 14.8% in September, 22.9% in October, 33.2% in November and 38.34% in December, according to data released by SIAM (see chart).
Market leaders like Tata Motors, Ashok Leyland and Volvo Eicher Commercial Vehicles (VECV) have been forced to cut vehicle production, and almost all vehicle manufacturers are struggling with large inventories. Many dealers are reducing piled-up stocks by selling at heavily discounted prices, though demand still remains weak as poor freight rates and an uncertain economic environment keep buyers away.
“The situation has been bad throughout the fiscal, and continues to be grim,” says Vinod Aggarwal, Chief Executive of VECV. “There has been a decline in all the months of this fiscal, and December has also been quite bad.”
M/HCV recovery dependent on upturn in Indian economy
During fiscal year 2012-13, M/HCV sales in the period April-December fell by 19.13% year-on-year from 244,921 units to 198,079 units.
Tata Motors has been cutting its production in line with slowing demand. M/HCV goods carrier production at Tata Motors declined by 28% in the period April-December 2012, falling to 95,864 units compared with 133,356 units in the corresponding period a year earlier. The company has now undertaken a three-day block closure at its Jamshedpur plant from 14 January to control output.
Worryingly, this is the second block closure at the plant in recent times. The Jamshedpur plant produces heavy commercial vehicles, engines, cabs and cowls. In 2012, Tata Motors implemented a total of 15 days’ block closure.
Officials at various companies say things will continue to remain bleak until the Indian economy starts picking up. Data released by the government, however, points to a slow recovery. India’s GDP numbers have fallen to their lowest in a decade and the outlook remains grey. The country’s GDP growth, which once looked set to hit double-digits, has been stuck below 6% for the past three quarters.
M/HCV sector hit by mining bans and stalled infrastructure projects
Alongside the economic slowdown, the truck industry has been hit hard by the ban on mining activities in various states and the knock-on impact on core sectors like iron ore and coal. “The government should seriously look at the situation in core industries. For example, it should solve the problems associated with land and new mine acquisition. Rather than any package, we require some concrete steps from the government in areas like controlling fiscal deficit and a softening of interest rates. That will be a very positive message,” says VECV’s Aggarwal.
Companies also say the government should step up infrastructure projects, many of which have stalled due to pending clearances on various fronts, including environmental issues.
Vinod K. Dasari, Managing Director of Ashok Leyland, says urgent steps are required to boost spending on infrastructure projects. “Ours is a GDP-driven industry. This (economic activity) has to pick up pace for truck volumes to grow.”
Ashok Leyland has also been cutting production to align it with the market slowdown. M/HCV goods carrier production for the Hinduja-owned company has been down 12% in the April-December period at 35,965 units compared with 40,890 units a year earlier. Dasari says this has helped the company manage its inventory levels: “We have been working to manage this efficiently.”
Anirudh Bhuwalka, Managing Director and Chief Executive of AMW Motors – a relative newcomer to the commercial vehicle industry – also lists problems in the area of mining and allied sectors like coal and iron ore for the slowdown in M/HCVs. “These have to be addressed urgently as lack of approvals and other hurdles are hitting the industry badly,” says Bhuwalka.
Pawan Goenka, Automotive President of Mahindra & Mahindra (M&M), which recently bought Navistar out of the Mahindra-Navistar truck and truck engine JVs in India, also feels that demand will continue to remain low for some time. “Yes, the business is challenging at the moment, but we feel that it has a good potential over the long term. Despite the exit of Navistar, we are confident of the heavy truck market and Mahindra stands fully behind it, including making new investments,” says Goenka.
M&M, he says, will invest between Rs2bn and Rs2.5bn (US$36.5m-US$45.6m) for the maintenance of and upgrades to the heavy products it had developed in partnership with Navistar. Also, the company will develop fresh products like commercial vehicles in the intermediate segment (9-16 tonne). “When we develop new products, our investments will further go up,” says Goenka, pointing out that the company is hopeful of long-term prospects in the Indian M/HCV market.
The government needs to step in, says SIAM
SIAM’s President, S. Sandilya, says the government should initiate fleet modernisation and emission control programmes. “This will lead to some movement in the market as fleet replacement will happen,” he says.
SIAM has already cut the growth projection for the M/HCV goods segment for this fiscal year due to the poor demand in the first three quarters. In its December 2012 projection, SIAM drastically cut the bullish outlook of 5-7% growth in M/HCV goods vehicle sales that it made in its April 2012 forecast. SIAM now expects M/HCV goods vehicle sales to fall by 21-23% for the full fiscal year ending 31 March 2013.
Many also blame the hike in duty in India’s federal budget, presented in March, which allowed the Indian government to increase excise (factory gate) duty by 2%, leading to an increase in vehicle retail prices. The government also imposed an additional 3% duty on commercial vehicle bodies installed outside a manufacturer’s factory, which led to an additional increase in prices as many truck buyers prefer to source the bodies externally.
SIAM has now been asking the government to reduce the duty in the federal budget proposals that will be made in February. Among other things, the industry association has asked the government to look at specific measures that will increase the demand for M/HCVs. These include increasing the depreciation rate for commercial vehicles to 60%; stricter enforcement of legal provisions against overloading; and special schemes for the purchase of intra-city and inter-city buses.
“We require these boosters immediately to add life to the M/HCV segment. The government needs to step in as the conditions are very bad at the moment,” says Vishnu Mathur, SIAM’s Director General. The association has also said that the government should increase the number of vehicles it purchases for municipal bodies which will also help boost demand.
The slowdown in the market poses a challenge to new entrants like Daimler, which began sales of its locally-made brand, BharatBenz, in India last year.
There remains some hope for the full fiscal year, however: sources have indicated rising demand in the final quarter, a traditionally positive sales period towards the end of which companies often buy new vehicles to take advantage of depreciation benefits.
Radhe Shyam
