Policy

Utility vehicles may lose edge, leg-up for commercial vehicles

Parvatha Vardhini BL Research Bureau | Updated on March 12, 2018

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Two major moves in the Budget related to the auto sector sends contradictory signals. On the one hand, the Government is keen to rev up sagging industry volumes through the introduction of the JNNURM scheme for buses.

On the other, it is applying brakes on volume growth in the industry’s most productive segment this year — utility vehicles — not through a special diesel vehicle tax, but by other means.

Giving CVs a chance

That the procurement of buses under the JNNURM scheme will be reintroduced is some relief for the domestic auto industry, which has been weighed down by a slowdown this year.

After 26 per cent volume growth (year-on-year) in 2009-10 and 2010-11, domestic auto sales slid to a 12 per cent growth last year and further lower to 4.5 per cent in the April 2012-January 2013 period. Like in any other downturn of the past, sales of medium and heavy commercial vehicles (MHCVs) that comprise buses and trucks have been the worst hit during this period.

Buses, which form about one-fifth of the total MHCV sales, have seen 5 per cent lower off takes (36,600 units) so far in 2012-13 compared to the same period last year. With state transport undertakings being the major customer for buses, the scheme will partly give a leg-up to MHCV volumes in the coming months just as it did in the period following the 2008-09 slowdown when it was first introduced.

Among the listed companies, Tata Motors and Ashok Leyland will be the major beneficiaries. These two companies have a market share of about 40 per cent each in the sale of buses.

Targeting SUVs

At the same time, the Budget has put spokes on volume growth in utility vehicles. Even though the 57 per cent volume growth achieved so far in 2012-13 may not be repeatable in the next fiscal, the excise duty hikes might slow down the growth sooner than expected.

For one, the hike from 27 per cent to 30 per cent (for vehicles exceeding engine capacity higher than 1,500 cc) further widens the gap between the normal rate for motor vehicles (12 per cent), vehicles with engine capacity of less than 1,500 cc (24 per cent) and these UVs.

This is in stark contrast to a long-standing industry demand to lower UV excise rates. With the auto industry always having passed on the cost increases to customers either in tranches or at one go, UVs might turn costlier sooner than later.

Two, with diesel prices also in a way de-regulated by making way for measured increases every month, the edge that UVs have over petrol cars might begin narrowing, making the case for ignoring cars weaker. So indirectly, this move might push up the languishing car sales.

Among listed UV makers, with Tata Motors’ UV sales being nothing to write home about this year, Mahindra and Mahindra could be the stock under the scanner. The company is already facing challenges from a slowdown in tractor sales.

Published on February 28, 2013

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