Slowdown leaves commercial vehicle-makers in the lurch

For the country’s commercial vehicle-makers, the last 19 months have been harrowing with sales of large trucks in a freefall. Starting April 2012, when sales of medium and heavy commercial vehicles (M&HCVs), the breadwinner for the manufacturers, fell nearly 12 per cent over the same month in the previous year, the fall has been becoming steeper by the month.

For a brief while in this 19-month period, overall commercial vehicles sales were in the positive territory, thanks to the light- and small commercial vehicles. From November 2012, total CV sales have been dropping. And the industry is not sure if the sales have hit the bottom for it to even to think of a bounce-back.

State of economy The fortunes of the CV makers mirror the state of the economy. Sales of large trucks are driven by investments in mining and infrastructure. Both these sectors are stagnating; the mining sector hit by court rulings, and the infrastructure sector by the economic slowdown.

In April-September of this fiscal, the mining sector declined 2.5 per cent while the manufacturing sector grew 0.1 per cent over the same period the previous year.

Some believe that a turnaround in the economy and, consequently, the fortunes of the two sectors, can be expected only in the next financial year, probably in the second quarter, after a new government is in place at the Centre.

Ravindra Pisharody, Executive Director and Head, Commercial Vehicles Business Unit, Tata Motors, said the situation continued to be challenging. There were no immediate signs of any improvement.

Freight availability is low and freight rates are not going up; fleet utilisation is low and even large operators are not looking at replacing aged vehicles in their fleets.

Excess capacity Excess capacity too is hurting the industry. T. T. Srinivasaraghavan, Managing Director, Sundaram Finance, a leading truck financier, says his company has been warning for quite some time of an overcapacity building up. But with things being good, this was not much of a concern. Now, with the slowdown hitting, the excess capacity is adding to the problem.

The major players in the sector include Tata Motors, Ashok Leyland, AMW, Daimler Benz and Volvo-Eicher. Tata Motors has a commercial vehicles manufacturing capacity of around 824,000 units and Ashok Leyland about 150,000. Capacity utilisation for Tata Motors is above 50 per cent while that for Ashok Leyland is around 30 per cent.

Structural changes Technological and structural changes have aggravated the slowdown problem: The industry has shifted to larger trucks, which means one truck will do when two were needed previously. Vehicles are more efficient now and hence can turnaround faster. Better roads have cut down journey times.

All these mean fewer vehicles are needed to carry goods. Where operators were changing their vehicles in three years, they are doing so now after four-five years.

In the case of used vehicles too, says Umesh Revankar, Managing Director, Shriram Transport Finance Co, a leading financier of used trucks, fleet owners are delaying purchases by six to 12 months. He feels rural demand for trucks will pick up once the harvest begins in full swing.

Facing the slowdown Pisharody says Tata Motors has launched a spruced up version of its best-selling small commercial vehicle Ace. It has also got into the 380 HP range, besides stepping up customer connect.

Vinod K. Dasari, Managing Director, Ashok Leyland, says the company is launching new products, improving quality, upgrading network and reducing costs. The company had a voluntary retirement scheme for executives in November and about 500, or a tenth of the executives, opted for it.

“We have seen several cycles and we will wait it out this time also. We are doing the small things we need to do. Till things improve, it is fasten seat belt,” sums up Srinivasaraghavan.

>ramakrishnan.n@thehindu.co.in

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