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| Worst seems to have passed for CV makers |
| Ranju Sarkar / New Delhi Aug 06, 2009, 01:41 IST |
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Sales of commercial vehicles (CVs), which were on a decline for over a year, are showing signs of a recovery. Two out of the three CV makers reported an increase in sales last month.
Tata Motors, the country’s largest CV manufacturer, reported a 27 per cent growth in sales volumes in July 2009 over July 2008. While Eicher trucks & buses, part of VE Commercial Vehicles Ltd, also reported a 14 per cent increase in CV sales in July, Ashok Leyland defied the trend, and reported a 35.3 per cent decline in July sales.
But experts warn that percentages mean nothing (as the base was really low last year), and we should not get carried away by the percentage increase in sales.
What’s significant, though, is that there are signs of recovery in the medium and heavy commercial vehicles (M&HCVs), trucks with a carrying capacity of 16 tonnes and above, that was the worst affected segment. Tata Motors, which accounts for 61 per cent of CV sales in the country, reported a 6 per cent increase in M&HCV sales in July.
T Srinivasaraghavan, MD, Sundaram Finance, said, ‘‘I would like to believe we have hit the bottom, and the worst is over. We are probably at the beginning of a climb back.’’
‘‘The confidence is starting to return. If the infrastructure story gets off the ground, sales could gather steam… The fleet operators are selectively buying vehicles, and there is definitely positive sentiment in the last three-four months,’’ he said.
Somnath Bhattacharjee, executive vice-president, (sales, marketing, aftermarket), VE Commercial Vehicles, feels the higher allocation on infrastructure in Union Budget could boost HCV sales. This is likely to increase the demand for tippers (used in construction), which account for 26 per cent of the demand for heavy-duty trucks. VE Commercial Vehicles is the equal joint venture between Volvo and the Eicher Group.
HCV sales, which declined 51 per cent in the last six months of the calendar year 2008, fell 9.7 per cent in July 2009. LCV sales, which were the least affected, are likely to grow 23.7 per cent in July, while bus sales have got a filip with higher allocations for purchase of city buses and a stable growth in the school bus market. ‘‘The CV sector is showing positive signs of a turnaround,” said Bhattacharjee.
Besides the downturn, what was hurting CV sales was considerable overcapacity in the industry. Experts feel this overcapacity is slowly getting absorbed, and hence the fleet operators are feeling confident to buy new vehicles. Till sales began falling 15-18 months earlier, CV sales showed a compounded annual growth rate of 30-35 per cent in the past three to four years.
If one factors in the increase in tonnage — 12 to 16 tonner vehicles were replaced by 25-tonners and 40-tonners (multi-axle and tractor trailers) — the capacity increased in excess of 100 per cent, year-on-year, in many of these years. Improved roads reduced the turnaround time of vehicles; a vehicle which took seven days to do a journey could do so in five days. This also added to the creation of surplus capacity in the industry.
‘‘The decline in sales which happened last year would have happened even without the economic downturn,’’ says Sundaram Finance’s Srinivasaraghavan. As the economy grew last year, the existing fleet of vehicles were able to cater to the demand for movement of goods but freight rates remained under pressure.
As the demand-supply situation improves, freight rates have begun to look up in the past 2-3 months and have moved up, on an average, by 10-15 per cent. With interest rates easing 100-200 basis points and increased movement of cement and durables, fleet operators are selectively buying new vehicles, but there’s no big rush yet.
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