The Hindu Business Line : Commercial vehicle cos resort to production cuts

New Delhi, Oct. 6 A pile-up of stocks at the retail end due to a slowing economy has triggered commercial vehicle manufacturers to cut their production of medium and heavy commercial vehicles by 20-30 per cent.

Leading companies, including Tata Motors and Ashok Leyland, have been adjusting production, anticipating lower demand, according to industry sources.

“The significant drop in volumes has been mainly in the medium and heavy commercial vehicle segment to the extent of 25 per cent from August on a year-on-year basis. These levels are likely to continue for the next few months as economics for truck operators has changed.

“The availability of finance, the interest rates, higher operating costs and higher vehicle prices (due to commodity rate increases) have affected the truck operators’ viability and resulted in postponement of vehicle purchase,” said Mr Srivats Ram, Chairman of Auto Component Manufacturers Association for southern region and Managing Director, Wheels India.

In August, Ashok Leyland’s medium and heavy commercial vehicle production remained almost flat, Tata Motors’ declined by 9 per cent and Eicher’s by 5 per cent over the same period last year.

While production numbers for September will be released later this week, wholesale company specific numbers reveal a declining pattern. Last month too Tata Motors’ sales for medium and heavy commercial vehicles fell by 10 per cent per cent and Eicher’s sales for trucks and buses declined by 34 per cent.

For the year so far, Tata Motors’ medium and heavy commercial vehicles sales were flat at 68,796 units. Ashok Leyland’s total commercial vehicles at 26,872 units in the April-August period, declined by 1.5 per cent from 27,285 units in the April-August 2007 period.

“Till August our top line was growing at 20 per cent and it is only after that we are witnessing a 30 per cent reduction,” said Mr Randeep Jauhar, Chief Executive Officer, Jamna Auto, which is also a supplier to major commercial vehicle companies. Overall sales in the category for the fiscal could be down by 10 per cent, he said.

According to industry players, the cut in production is mainly due to rising level of stocks at the dealers’ end which is now compelling vehicle manufacturers to reduce production.

“In case of commercial vehicles, the stock levels at the dealers’ end have increased to two months now,” said Mr Rakesh Jain, past president of the Federation of Indian Automobile Dealers’ Association.

Leading suppliers to the commercial vehicle manufacturers, including tyre companies, say that the inventory build up of medium and heavy commercial vehicles is as much as three months, against a norm of one month’s stock. With interest rates being what they are, pointers are towards a general economic slowdown and the first sector that takes a hit is the commercial vehicles segment, according to the suppliers.

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