Slowdown in the auto industry

Parvatha Vardhini C | Updated on November 23, 2017 Published on October 13, 2012


Inflation, rising finance and fuel costs and a slow down in industrial activity have taken a toll on domestic medium heavy commercial vehicle sales.

After a slump during the economic crisis of 2008-09, medium and heavy commercial vehicles (MHCVs) had a dream run for the next two years (2009-10 and 2010-11).

But, stubborn inflation, rising finance and fuel costs and a slow down in industrial activity have taken a toll on domestic MHCV sales since then.

Sales in the first half of 2012-13 have declined by about 12.5 per cent over the first six months of last year. Though passenger carriers (buses) have seen reasonable off takes, goods carriers have witnessed a slump in volumes across all segments be it haulage trucks, tippers or other multi-axle vehicles.

The Government has recently taken some steps to put the economy back on track. Nevertheless, SIAM (Society of Indian Automobile Manufacturers) expects the trend of declining volumes to continue.

According to its latest projections, the industry as a whole, is expected to grow only by 5-7 per cent in 2012-13.

Medium and heavy goods carriers are expected to be the worst performers, closing this year with 11-13 per cent lower volumes than last year.

Fall in truck rentals

The trend in freight rates too is not encouraging. Sample data on freight rates in eleven trunk routes collected by IFTRT (Indian Foundation of Transport Research and Training) shows that truck rentals have dropped between 1 per cent and 4 per cent in April-September 2012, compared to a year ago.

The drop in the first half of this year comes after a relentless rise in rentals from October 2009 onwards.

Lower cargo offerings from manufacturing, agriculture and export import trade have been a prime reason.

This fall does not augur well for the industry as a strong rentals scenario reflects the demand for goods carriage.

LCVs defy the trend

It also shows that fleet owners have been able to pass on cost increases (diesel prices, for example) to customers. Strong rentals could help sustain demand for new trucks too. Rentals however recovered a bit in end September 2012 after the diesel price hikes last month. But whether this recovery will sustain remains to be seen.

The good news is on the LCV front. So far in 2012-13, light CVs have yet again proved that they are less affected by the cyclicality that impacts bigger vehicles.

Although their growth rates have slowed, LCVs were still able to expand volumes by 16 per cent in the first half of this year, compared to a year ago.

Much of the sales in this segment come from the mini-trucks such as Ace and its variants (Tata Motors), the Ape Truck variants (Piaggio), Gio, Maxximo (Mahindra) and pick-ups such as the newly-introduced Dost from Ashok Leyland.

A shifting preference for these vehicles from three-wheelers, considering their superior performance and comfort features is one reason for their strong growth in the last few years.

Besides, the proliferation of the hub-and-spoke model (where large, heavy trucks are used for inter-city movement of goods and such small CVs are used intra-city, for last mile connectivity) is another reason for the same.

Published on October 13, 2012
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