Indian commercial vehicle industry analysis and trend forecast – July 2019
Published On Sep 30, 2019
The commercial vehicle segment a bellwether of the Indian economy eyes a revival in the next few months with anticipation of greater demand for tucks in the upcoming festive season and pre-buying kicking off ahead of BS-VI emission norms implementation. We analyze July 2019 sales trends, industry outlook and road ahead for the Indian trucks manufacturers.
The Indian automobile industry has been witnessing a major downturn over the last 12 months. While the first signs of stress on sales started to emerge in as early as September 2018 as the industry was predicting an uptick during the festive season. However, the prospect turned-out to be catastrophic. This caught the industry completely off-guard resulting in a massive inventory pile-up across the dealerships which put a lot of pressure on OEMs to reduce the inventory by offering discounts. This slowdown further continues into FY19-20 as the demand remains subdued.
The slowdown in the automotive sectors has coincided with the overall negative sentiments in the Indian economy. Also, the automotive sector is 4th largest in the world, contributing more than 7 % of GDP with 32 million skilled people employed across India. India has emerged as 5th largest car manufacturer, 7th largest CV makers and largest two-wheeler market. Besides this, the auto sector has a large ancillary sector depends on the demand from OEMs thus generating a lot of economic activities.
The commercial vehicles segment, in particular, is barometers of the economic activities as economic performance directly impact the sales of trucks which find applications in transporting goods to the length and breadth of the country. Over the last few months, there is a subdued movement of goods across the country, also a reduction of nearly 10-15% in the overall movement of food and farm produce supplies to wholesale markets and ongoing monsoon across various states also disrupted transportation by idling trucks capacities across key markets.
Last 2-3 years, the commercial vehicles industry has gone through a lot of disruptions such as the transition from BS III to BSIV, demonetization, implementation of the GST, increased in the axle load norms, NBFC crisis, and the upcoming BSVI transition. All of this had a direct impact on the sector where fleet operators cautious in buying news trucks due to lack of freight availability.
Sensing the stress in the economy and to alter negative sentiment, the government has stepped-up rather proactively with several stimulus measures to create demand by easing the liquidity in the banking system, and simplifying the tax structure and announcing sops to exports. Last week’s historic decision of reduction ineffective corporate tax is aimed at easing companies with higher profits to enable private investment in the country.
While the government is trying to incentivize several sectors to improve the overall economy, the Commercial vehicles sector is directly linked to the economic activities of the country; gloomy economic scenario means adverse truck sales which are quite evident over the last few months, especially, the medium and heavy commercial vehicles (M&HCV) which are deployed in haulage and construction activities.
Therefore, the current slowdown in the economy means there are fewer shipments of goods to be carried across various states. Also, the liquidity issues facing fleet operators are also impacting the retail sales-some of the truck owners are finding hard to repay the EMIs due to lower freight. Therefore, it appears the recovery of the truck sector is largely hinge on a turnaround in the overall economy.
Greens Shoots of recovery
Despite in general pessimistic scenario, there is positive news for the CV industry, post-election general elections, and the focus of the new government towards higher spending on the infrastructure and road construction which will help some revive growth. Furthermore, the pre-buying likely to kicking in ahead of the BS-VI emission norms that are coming into effect from April 2020- which estimates the prices of trucks to go up between 10-12 %. Once the sentiment takes a positive swing the demand will come back, it is estimated that as the festival season starting September, the industry is expecting a higher demand until December and January 2020.
The Society of Automobile Manufacturers (SIAM) has suggested some measures to the government to revive the demand for the automotive sector. According to SIAM, there is an urgent need to come out with an integrated incentive-based scrappage policy covering all segments of the Auto Industry. Now all eyes on the festival season which could herald recovery in the industry which is likely to be buoyant for vehicle manufacturers.
Faced with negative factors and production cuts by several manufacturers to reduce the inventory and beat the slowdown, the July 2019 month witnessed overall production of commercial vehicles declined by 26.44% as compared to the same period last year. Top manufacturers including Tata Motors, Mahindra & Mahindra, Ashok Leyland and VE Commercial Vehicles have cut production by 31.9%, 17.3%, 26.3%, and 39.3% respectively for the month of July against July 2018.
The critical M&HCV segment goods carrier segments registered a drop of 42.9%, whereas the passenger vehicle segment bucked the trend by growing 5.5% on the back of higher demand for both inter and intra-city crew transportation vehicles. The LCV segment which is comprises 67 %of the overall CV market in terms of volumes also recorded a drop of 24.5% in production compared to the same period last year. This is reflected in the fall across segments including milk transportation, agricultural produce, poultry, fisheries, parcel/courier, containers, catering/food business, e-commerce, FMCG, medicine, beverage distribution, LPG cylinder distribution, cash van, construction/site support etc.
The commercial vehicle segment, like passenger vehicle, continues to be badly hit by the ongoing slowdown. Since the last two quarters, the demand for trucks is down owing to lower freight availability and overcapacity in the market. The industry de-grew 25.7% in the July’19 compared July’18. The M&HCV good have been the most impacted, on a month on month basis sales plunged by 19.6% from last month (June’19) both M& HCV and LCV declined by 30.2% and 13.7% respectively.
The drop-in M&HCV passenger and good carrier segments down by 7 % and 41.4 % respectively in July’19 against the same month last year. The passenger and good carrier segment of the LCV are down by 9.4% and 19.8% in the month.
The drop in the overall sales across segments is also reflected in the truck manufacturer’s market share performance in the month. Market leader Tata Motors market share declined to 39.1 % (June’18: 46.4%). The SCV, ILCV and M& HCV segments have declined by 7%, 6%, and 6% respectively in the month.
Tata Motors loss is Mahindra & Mahindra’s gain, as the company has increased its market share by 5% to a total of 28% in the month, on the back of gain in the small commercial vehicle segment.
Ashok Leyland, the second-largest player in the M& HCV segment has gained 6 % market share to a total of 40.4 %, essentially sustaining its market share in the month despite the slump in the overall market. VE Commercial Vehicles has gained 3% market share in the ILCVs, the company gained a further 0.6% market share.
The commercial vehicle manufacturers over the last few years have been pushing hard to grow exports. Apart from the SAARC countries, Indian trucks are in demand in Africa, Middle-East, South America and South-East Asian countries. All the truck makers are eyeing greater traction in exports in order to circumvent the slowdown in the domestic market. Post-implementation of the new axle load norms and the imminent transition to the BS-VI augurs well for the export of commercial vehicles sector, as the overall geographies for exports are likely to go up. In July, the total exported de-grown by 32.8%.
In terms of segments, the LCV segment-both goods, and passenger carrier exports declined by 17.7% and 8.9% respectively. The M&HCV goods carrier segments registered a massive 63.5% drop, while the M& HCV passenger carrier segments export up by 20.3%.
Indian Foundation of Transport Research and Training (IFTRT) which reports monthly freight rates at key routes in India says, “Due to weakness in cargo offerings from agri-produce by 10%-15%and factory gates by 7%-10% from MSMEs has led to a drop in monthly full round trips for goods carriers on trunk routes by around 25%-30% and coupled with this the truck rentals too drop further by 1.5%-2% on the back of continuous drop for last three quarters since November 2018, which has cumulated truck rental fall by 12.5%-17.8% in last nine months ending 31st July 2019.”
IFTRT foresees no immediate economic recovery apart from the festival season and Kharif crop harvesting, yet it says automakers are now banking on pre-buying during the third quarter of the current fiscal of BS-IV vehicles to beat the high-cost migration to BS-VI vehicles from 1st April 2020.
It appears that there is uncertainty in the near-term for the commercial vehicle segment, yet given Indian’s one of largest growing economy in the world and the increasing needs of surface transportation, the long-term growth story remains intact for India.