Muted sales of medium, heavy commercial vehicles worry auto sector

Slackening sales in the medium and heavy commercial vehicle segment (M&HCV) for the past two months is causing anxiety in the automobile sector.

After a strong start with about 25 per cent growth in sales in April, which usually registers lowest sales after a peak in March, the goods category of the M&HCV market maintained its growth momentum in May also. But, volumes slowed to 2.3 per cent compared with the growth of 23 per cent in June 2015 and in July this year, sales fell 7 per cent compared with the growth rate of 25 per cent in July 2015. This comes after a strong year for the overall M&HCV industry that ended 2015-16 with a growth of 30 per cent at 3.23 lakh units.

Though the industry was expecting some moderation in growth as annual growth of 30 per cent would not be sustainable, the slowdown in truck sales in the past two months has sparked concerns on a possible reversal of the sales trend. The industry has projected a growth of 15 per cent or little less than that for this fiscal.

“Last year’s 30 per cent growth was primarily driven by replacement demand and pre-buying due to anticipatory mandatory changes in emission and safety norms,” said TT Srinivasa Raghavan, Managing Director, Sundaram Finance, a leading player in CV financing. Huge discounts offered by dealers for new purchase of trucks are also a factor in sales growth.

He felt that it was early to conclude on any trend, going by the recent sales patterns. “The tightening of emission norms effective April 1, 2017 may spur some advance buying in this year also in the second half of this fiscal,” he added.

While road and related infrastructure segments have seen revival and that has driven sales of tippers, manufacturing output has not shown any big uptake to aid sales growth in the haulage segment.

A report of India Ratings and Research points out that the sales growth in M&HCVs in the past two years are not corroborated by the Index of Industrial Production, which has displayed an inconsistent trend in this period.

Also, growth in the gross fixed capital formation (which is an indicator of an uptick in economic activity) has been tapering down in the past three years. Further, capacity utilisations across industries have not improved, while exports continue to be tepid too.

Freight rates, after declining towards the end of FY15, have remained flat in FY16, with a slight increase in certain sectors in the current financial year, it added.

“More than any other factor, freight availability is a key driver of truck sales. Sustainable uptick in truck sales will be possible only when capex cycle, both public and private, begins and large spending on infrastructure sector happens, said SP Singh of IFTRT (Indian Foundation of Transport Research and Training).

“Truckers are waiting for better fleet utilisation on account of higher consumer spending and good post-monsoon harvest.

“So for fleet expansion, recovery in truck freight rates and better utilisation levels are essential. While there could be pre-buying due to new emission norms, truckers also expect some drop in prices of vehicles in view of GST implementation,” he added.

Thus, the market trend is likely to be fluid for the next two-three months and the sales pattern in the coming months may highlight the real situation in the market.

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