Indian commercial vehicle industry sales analysis and trends forecast – November 2019
Published On Dec 17, 2019
As the overall automotive sector faced with challenges, the commercial vehicles industry is pinning hopes on a revival in the economy and some stimulus by the government to fuel consumption in the country. The month on month sales remains negative as the Indian economy is facing several headwinds. This along with lower demand for freight, over-capacity in the system, and upcoming BS-VI norms, are adding uncertainty. We take a closer look at the sales trends, analyse the November 2019 commercial vehicle sales, production, export and the outlook for the sector.
The overall wholesale numbers of the automobile sector continued to fall in November across segments after a marginal uptick in the festive season. The commercial vehicle segment stays negative as demand from the infrastructure sector and muted growth in freight activities hampered uptick in sales. While OEMs are working towards rationalising production- mainly by plants shut down to contain inventory, yet there is hope that pre-buying is likely to pick up ahead of BS-VI emission deadline of 1st-April 2020.
The November sales of CVs across goods and passenger segment plunged by double-digits without any clear sign of recovery. While the total CV sale is down by 14% to 61,907 units, the critical medium and heavy commercial vehicles (M&HCVs) good carrier segment declined by 41%, and similarly, the LCV goods carrier segment down by 7%. The passenger carrier segments of both M&HCVs and LCVs returned to positive territory.
The truck sale is directly linked to the overall economic scenario in the country, and it is no secret that the Indian economy, at present, is going through challenging times, which is visible across sectors. The Indian economy witnessed the slowest growth in six-year in July-September 2019 period.
The data from the government suggests the GDP growth rate for the second quarter was 4.5% against 7 percent during the same period last year. While the GDP growth rate is dropping, the core sectors have also been contracting. Three core sectors including agriculture, industry, and manufacturing, recorded a lower than expected growth compared to last year. Similarly, the factory output is also sharply contracted to a multi-year low pointing towards a persistent slowdown in the Indian economy. The negative growth in manufacturing, mining, and electricity dragged the Index of industrial production down.
FADA RETAIL NUMBER POINTS DROP-IN CV SALES
The Federation of Automobile Dealers Association (FADA) November retails data suggest that commercial vehicle sales continue to face strong headwinds. While on Year-on-Year (YoY) basis, overall vehicle registration climbed by 2%, including 2W, 3W and PV are up 3%, 20% and 1%, respectively. The commercial vehicles sector only de-grew in the month by 8%. On the inventory front, both the PVs and 2W inventory remains in a similar range as last month but the CV inventory continues to drop.
According to FADA, “With strong spill-over demand post the festive season, the month of November gave extended cheer to the dealer community with retails registering a slight growth YoY in all segments except CV’s, where demand continues to be quite weak. Agriculture produces, which are now trickling into the markets after the extended monsoon, which also delayed the crops additionally contributed to the uptick in the semi-urban and rural markets. Along with this, the effects of the positive measures taken by the government is also playing its part. With slight positivity in November, dealers' inventory remained more or less at the same levels in both 2W and PV categories. Dealers, though, got an opportunity to further reduce their inventory in the CV category by ~5 days. Once again appreciating the efforts of all our OEM’s in regulating wholesale supplies, FADA is quite confident that the inventory in all the three categories, viz. 2W, PV and CV will soon be in the range of our recommended and requested an optimum range of 3 weeks.”
TRUCK RENTAL DECLINED
Indian Foundation of Transport Research and Training (IFTRT) reported a decline of truck rental in the month up to 2% on leading trunk routes across India due to continuous slump in industrial and core sector activities and adverse procurement of fruit/vegetables and food items by 10%-15% except for vegetables like onions and potatoes where the supply has been down by 30%-40%, the truck rentals continued their slide on quarter to quarter basis.
According to IFTRT, “The monthly fleet utilisation in last year and a half has plummeted by 30%-35% for a truck running on trunk routes and is born out of an economic slump, bordering on recession in some of the industries; consequently, the monthly revenue of trucks in the last two quarters, in particular, has plummeted by 35%-40% on reduced round trips on trunk routes with 4-7 days waiting period for return cargo on most of the routes.”
This resulted in a fall in truck sales to the tune of 40%-45%. Truck makers are hinging their hopes on the mandatory vehicle scrappage policy yet to be approved by the government. The IFTRT has been consistent that there are several other tools to curb vehicular air pollution by digitizing annual vehicle inspection and maintenance regime and upgrading the computerized PUC checkup system.
The product numbers are yet to recover as OEMs continue to observe production cuts to rationalize the overall production in the systems. However, the overall CV production is down by 16%; which is still much better than the deep drop of over 40% in the last few months. The total production in November was 68,460 units. (November 2018: 81,858 units). Several of the manufacturers observed production cuts in the month to curb the excess vehicles in the distribution; also, a lot of them are trading with caution to avoid mounting of inventory towards the end of March 2020. OEMs are looking to stop producing BS-IV vehicles and start making only BS-VI vehicles and retail them from April 2020. This is undoubtedly a challenge that the OEMs are not sure how to face, yet they are trying best to align the production and supply chain.
In November, Tata Motors produced a total of 30,542 (-15%), Mahindra & Mahindra 20,012 units (-2%), Ashok Leyland 9,556 units (-38%) and VE Commercial Vehicles 3,482 (-31%) The M&HCV goods carrier segment production declined by 54.5% to 13,596 units and the passenger vehicle segment continue to be positive with strong double-digit growth of 48.5% with a total production of 4,249 units. The LCVs passenger and goods carrier declined by 10% and 4% respectively to 2,357 units and 48,078 units.
The commercial vehicle sales remain in the negative territory as the overall automotive market faced with slowdown. In the domestic market, the overall CV sales declined by 15% in November to 61,907 units. (November 2018: 72,812 units). The heavy-duty truck segment registered a sale of 13,675 units down by 41% and the passenger carrier segment saw some rebound with an uptick of 63% to 3,364 units. The LCV passenger and goods carrier segments recorded sales of 2,898 units and 41,970 units in the month down by 23% and 7%, respectively.
Tata Motors sold a told of 27,484 units in the month (-15%) with a market share in the overall CV segment of 44%. Mahindra & Mahindra’s total sale of 17,384 units (-12%), the company garner a market share of 28%. Chennai based Ashok Leyland’s sales declined to 9,377 units (-25%), and the company has a market share of 15%. VE Commercial Vehicles recorded a dip in sales of 23% to 2,948 units. Force Motors and SML Isuzu have sold 1,588 and 499 units, respectively. Maruti Suzuki sold 2,267 units of its Super Carry, up 7%.
The exports of commercial vehicles declined by 29% in the month to 5,694 units. Market leader Tata Motors exported a total of 2,808 units in the month (-36%), M&M shipped 1,292 units (-33%), Ashok Leyland exports in the month stand 798 units (+45%), and VECV-502 units (-36%). Indian commercial vehicle manufacturers are eyeing exports to India like markets, including SAARC, Africa, Middle East, South America and Southeast Asian countries to off-set some domestic slowdown; however, these markets have their internal complexities that impact the demand. However, Indian CV OMEs have abled to penetrate these markets with substantial brand transition; this will further help to expand to gain a greater foothold in these trucks and bus segments.
Commercial vehicle sales are a barometer of the country’s economic state, as trucks are directly deployed into the infrastructure building and transporting freight across the length and breadth of the country. As the overall economy is crippled with challenges, consequently, the trucks’ sale, and thereby optimism in the short term, is suffering. Large fleet operators who place bulk orders are treading with the utmost caution, liquidity crisis not adding any headroom. The demand for freight is muted and they are not eager to buy new trucks. Similarly, the individual buyers are faced with excess capacity in the industry, and thus the demand for trucks is subdued.
This is a double whammy for the CV industry unless the economy starts to pick-up and the demand for freight increases, it is unlikely that the industry would see its fortune turning around in the immediate month. However, the government is taking steps to fuel growth, taking policy decisions and offering stimulus to bring back the economy on track. Along with this, some pre-buying and scrappage policy shall help invigorate the demand over the short-term.
The Auto Expo in the coming year is being watched with a lot of optimism where most of the OEMs have confirmed with their BS-VI launches across their respective focus categories. Keep visiting the news section for updates.