Auto Sector still not sure if demand for BSIV commercial vehicles in FY20 would arrive

Auto Sector still not sure if demand for BSIV commercial vehicles in FY20 would arrive

Key Points:
• Majority of the commercial vehicle manufacturers in the country are still positively hopeful that there will be a jump in advance sales of BSIV M&HCV’s in second half of FY20 before BS-VI norms kicks in.  
• The basis of this expectation largely falls on the fact that there is going to be a rather significant price hike due to arrival of BSVI norms on April 1, 2020. Thus, in theory this should boost the sales of current stock of BSIV vehicles before the April change. 
• The good and extended monsoon season will directly affect the sales of the Light Commercial Vehicle Segment in a positive way.


It has been quite a ride of the not-so-happy’’ kind for the Indian Commercial vehicle makers in past few months. On one hand there has been a market that seems adamant to continue its tryst with depressed growth. On the other, there is the pending implementation of the fairly significant BSVI emission regime. This has divided the commercial vehicle makers in the country into two different viewpoints of what the near future would hold.  The concern in point is the expected jump in the advance sales of BSIV commercial vehicles, especially in the M&HCV segment through the remaining part of the FY20, just before the BSVI implementation. Now, major CV makers such as the likes of – Tata Motors, Volvo Eicher Commercial Vehicles (VECV), Scania, Ashok Leyland, etc – still remain positive in their expectations that the demand in the all-important M&HCV segment is going to pick up at a faster pace as we inch closer to the April 1, 2020 deadline for BSVI. 


On the other hand, significant CV makers like Daimler India and FADA or the Federation of Automobile Dealers Association (that has country’s commercial vehicle dealers as its members) does not sound that upbeat about the whole situation. The major point of division among the makers and the dealers comes regarding the M&HCV segment that is seeing a large stock pile up at the dealer end. Earlier this year, majority of the sector was on the optimist side of the table anticipating a boost in the pre-buying of commercial vehicles, specifically medium and heavy trucks. This was on the basis of the price hikes that will arrive with the BSVI. The industry was (and is, for the most part) hoping that this would translate into a direly needed relief for the Indian Commercial Vehicle industry that is experiencing its worst run of sales de-growth in two decades. It stings even more so since until recently, the industry was posting express growth throughout the segments. 


The biggest issue that is hindering and throwing the proverbial spanner into the works is the massive build-up of M&HCV stocks, a rather abnormal occurrence. This has a potential to infect the kinks in the industry’s optimism, as the dealers specifically are (now) not expecting pre-buying of these trucks anytime soon. Liquidation of these assets has become a major concern since dealers continue to eat up into their cash reserves in paying out high interest payments on loans that they used up in purchasing the stocks, that now remain unsold. Now, it is a common understanding that once they go on sale eventually, the BSVI compliant M&HCVs will end up costing 8-10% higher over existing BSIV models, a significant amount. 


The issue looks clearer in the retail and inventory data released by FADA for the July to August 2019 period.  It reported a CV inventory build-up of that has reached up to 60 days, a long duration if we look into the historical data. Add to it, there has been a 24% reduction in sales year-on-year during the fiscal first half. The total sales by the industry stood at a mere 352,331 units during the period. The segment that was most hurt was the aforementioned segment in concern, M&HCV. The sales in this segment were recorded to have fell by 60% in the September quarter. This is based on the number of factory production shutdowns days, according to data issued by the companies.
Bright side is, the good and extended monsoon season will directly affect the sales of the Light Commercial Vehicle Segment in a positive way.

 

But the kick starting of the pre-buying season in the M&HCV segment would largely depend on the following:
1. The price differential that will eventually arrive between the BSIV and BSVI models. 
2. Sales growth through pre-buying of tipper trucks still largely depends on new projects awarded to the contractors. That can only happen through increased investments in infra by the government or private sector or both.
3. The most significant segment of 16-tonne and above multi-axle or haulage truck can only, in theory, see pre-buying if the subdued market demand picks up in the festive season going onto the November and December period.
4. As against the positive impact of festive period on car and two-wheeler sales, the sales in the M&HCV segment do not get impacted by it. Only a guarantee of continuous business for at least next 6-12 months will inspire buyers to purchase M&HCV segment products. 


On the bright side, a question arises, “Why would fleet operators, who are planning for and expect to see business pick up in first half of the next Financial Year, not buy more affordable BS-IV trucks in Q4 of this fiscal year?" 
This is a pretty interesting question and only time will tell what would come out of it. That said, there is no denying the fact that in all its probability, the worst is behind us and the market should be getting ready to jump back into action, albeit slowly, and the smart businessmen would like to make the most out of it.

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