Three-wheelers: Way forward

With cars, bikes, trucks and buses hogging the limelight in any discussion on the auto sector, the three-wheeler segment (auto rickshaws and goods carriers) remains less talked about. In a year in which the domestic auto industry has faced multiple headwinds, resulting in a moderation in sales, how have these vehicles fared? What are the trends emerging in this segment?

Auto rickshaw volumes shrink

Like buses and passenger cars, the volumes of three-wheeled passenger carriers (auto rickshaws) have declined for the April- December 2011 period. Industry volumes here are 3 per cent lower than last year. However, lower volumes cannot be attributed to the general economic slowdown. High interest rates could have been a dampener, but over 80 per cent of the borrowing for auto-rickshaw purchases access funds from the unorganised sector where rates are higher than banks or NBFCs.

Since the government regulates the plying of auto rickshaws, an important reason for the subdued performance has been the non- issuance of new permits. Take TVS Motors, a company with considerable market presence in Tamil Nadu, for example. The opening up of permits in the State during the same period last year, saw its volumes dash up from 8,075 vehicles in April-December 2009 to 17,296 vehicles in 2010. In the absence of a similar boost this year, the company has sold only 8,000 vehicles so far in April- December 2011.

Cargo vehicles grow faster

While auto rickshaw volumes were nothing to write home about, three-wheeled cargo performed much better, growing by 12.5 per cent. A comparison with April-December 2010 reveals that this is higher than the 9 per cent growth achieved last year. And this has happened in a year in which most other segments have either shown a moderation in growth or a negative growth.

This higher growth achieved in the three-wheeled cargo segment could be due to the catching on of the hub and spoke model. Under this model, large heavy trucks are used to ply goods across cities and smaller trucks (three/four wheelers) are used for last mile connectivity. This fuels greater demand for vehicles in both ends of the spectrum than those in the intermediate category.

This is vindicated by the fact that the only segment that shows a similar trend is the light commercial vehicle (LCV) — goods carriers segment, dominated by mini-trucks such as the Ace (31 per cent growth now vs. 29 per cent last year).

That said, these mini-trucks have been posing stiff competition to three-wheelers. How did the three-wheelers manage to grow then? Industry insiders say that this could be a function of a portion of the four-wheeler buyers moving to three-wheelers.

High borrowing costs and tough economic conditions could have forced them to downgrade, considering the price difference of about Rs 1 lakh between these vehicles.

Four-wheeled auto rickshaws

Going forward, in the passenger segment, companies are gearing up for a structural shift to an “auto” on four-wheels from an “auto” on three-wheels, thanks to the introduction of the RE60 by Bajaj Auto. By being the first mover, the company is trying to capitalise on the slowly, but steadily, growing opportunity for safe, environment-friendly and fuel-efficient means of public transport as an alternative to a car. So, vehicles like the RE60 fit the bill.

Bajaj is not the only company gearing for such a future. Vehicles such as the Ace Magic and the Maxximo mini-van are also steps in this direction. Hence, the way forward for other auto rickshaw manufacturers such as Piaggio or TVS could be to come up with such vehicle platforms as the RE60.

However this does not sound the death knell for auto rickshaws yet, as the transition is quite sometime away. In the meantime, exports could drive growth. Currently, about 85 per cent of the auto rickshaw exports are from the Bajaj stable.

Considering the under-developed nature of public transport systems in the African countries and opportunities in Latin America and East Asia, other players could expand their presence in these countries.

This will also help to diversify from the unpredictability on the domestic front. Besides, opportunities would also arise if some other states decide to do away with the permit system and let market forces determine the demand for auto rickshaws. Currently, only Gujarat and Tamil Nadu have done this.

Mini-trucks to stay

On the goods front though, the future has already happened. Thanks to advantages such as greater cabin comfort, higher mileage and fuel-efficiency and low maintenance costs, mini-trucks are increasingly being preferred over three-wheelers. While, for reasons mentioned above, three-wheeler sales are still growing, a presence in the four-wheeled segment has become indispensable.

From sharing the market almost equally (46 per cent) with the four-wheeled mini-trucks (up to 3.5 tonnes) in April 2008, the share of three-wheelers has reduced to about 20 per cent by December 2011.

Piaggio and Mahindra have already come out with an answer for the Ace through the Ape truck /mini and the Gio/Maxximo.

With the introduction of its four-wheeled auto rickshaw, it will not be surprising if Bajaj uses this platform to build a cargo carrier. It would then be able to shore up its negligible presence in this segment.

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