The Hindu Business Line : Truck makers: A worried lot, brace for tough times

Bangalore/Mumbai/Chennai, Nov. 7 It is not panic situation yet, but with the economy slowing down, truck and bus manufacturers in the country are revisiting their growth forecast while tapping various resources to overcome the crisis.

Terming commercial vehicle sales as the economic bellwether, the Executive Director of Tata Motors, Mr P.M. Telang, told Business Line that the sector is showing signs of a downturn but it may not last long. “It is one of the first sectors to get affected in an economic slowdown. There will be ups and downs. We might see a backward movement but it will be a question of a few months.”

He said with 8 per cent GDP growth rate, the economy is growing. This means there will be more goods movement and it needs more vehicles on the road.

Drop in Sales

In October, Tata Motors and Ashok Leyland, two of the leading commercial vehicles manufacturer, reported steep fall in sales. Tata Motors’ total commercial vehicle sales fell 29 per cent to 19,154 units from that in October 2007. The fall in medium and heavy commercial vehicles was even steeper, at 48 per cent to 7,321 units last month.

Ashok Leyland sold 3,397 vehicles in October, which was nearly half of what it sold a year ago. Its medium and heavy commercial vehicles sales fell 53 per cent to 2,948 units.

While Tata Motors has announced a block closure of its Jamshedpur plant, Ashok Leyland has said its plants will work only three days a week till December – to align production with demand and reduce inventory.

Reduced order

Some component suppliers, including tyre manufacturers, Business Line spoke to said both the companies had substantially reduced their orders for November and December.

A Maharashtra-based auto component maker said Tata Motors had cut orders by 55 per cent in November while Ashok Leyland and Eicher cut orders by 65 per cent and 80 per cent respectively. “They all built up huge inventories in September and October. So in November and December, we will see a production cut by approximately around 50 per cent against the production numbers during the same months last year,” a representative of the company said.

However, he said that things would improve in the subsequent months. “In January, February and March, the commercial vehicle production would be around 15 per cent less than the year-ago period,” he said.

‘Wait and watch’

Volvo Buses’ Managing Director for India, Mr Akash Passey, said that the Indian economy has moved into low gear in quite a short period of time and this has impacted the auto industry and the next few months are challenging times.

“While we have secured long-term business volume to some extent, we feel the private market will be quite impacted due to high interest rates and sense of uncertainty in the system. We have to wait and watch on how long this impact will last,” Mr Passey said.

“The situation continues to be challenging and a lot of liquidity problem is still there,” Tata Motors’ Managing Director, Mr Ravi Kant, said. “Production continues to be moderated. We do not want to build up our inventories. Production will always be determined by demand. In some segments like LCVs, demand is going up.”

He said permanent workforce would not be pruned while temporary workforce would be reduced according to the situation.

In a statement today, Tata Motors said it continues to take steps to adjust production with demand, which included increasing or decreasing the number of shifts of operation or resorting to a temporary shut down of a plant. The shut down of the Pune plant from November 22 to 27 would also be one such measure to avoid unnecessary build up of inventory. The car plant would function in a normal manner.

According to Mr R. Seshasayee, Ashok Leyland’s Managing Director, the slowdown was largely because of poor access to vehicle finance and slow growth of the economy.

Flexing Finance Arm

Tata Motors is also tapping its finance arm to push sales of its vehicles. Mr Kant said the company’s focus on consumer finance through Tata Motors Finance has helped arrest the decline in sales. “Tata Finance traditionally used to finance 25 per cent of our vehicle sales. Now it has gone up to more than 30 per cent. We wouldn’t mind crossing 40 per cent to ensure that our sales are not affected,” he said.

The Managing Director of Mahindra Finance, Mr Ramesh Iyer, said the one of the biggest advantages of a vehicle manufacturer having its own finance arm is the facility to lend loans to the customers when banks are going slow on lending. “But if our borrowers (banks) remain tight, we too cannot lend beyond certain limits.”

Related Stories:
Commercial vehicle cos resort to production cuts

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