Used commercial vehicle sales see uptick amid auto sector slowdown

At a time when new commercial vehicle (CV) sales are coming down, those of used vehicles are seeing some momentum. This is mainly owing to a pick-up in light CV (LCV) and Intermediate CV (ICV) demand. Those in this space have reported positive growth and a key reason is increase in realisation.

According to industry estimates, while the organised sector is selling 10,830 units a month, the unorganised one is selling five times this.

Shriram Automall, which claims 60-70 per cent market share in the organised second-hand CV market, says its price realisation has gone up by 15-20 per cent from last year. However, unit-wise overall sales dropped by around 13 per cent, mainly because of a slowing in those of used heavy CVs (HCVs).

Sameer Malhotra, chief executive at Shriram Automall, says realisation for small vehicles increased to around Rs 1.4 lakh from Rs 1.2 lakh last year. For an LCV, to Rs 2.7 lakh from Rs 2.15 lakh; for a HCV, to Rs 4 lakh from Rs 3.5 lakh.

On the other side, average overall sales which used to be around 8,000 units a year ago has dropped to 7,000-7,500 units in a month.

On the other side, overall volume of new vehicles of India’s top four M&HCV makers fell 59.5 per cent.

M&HCV sales are seeing pressure due to various issues. Such as new loading norms, turnaround time of trucks having increased after the goods and services tax and liquidity remaining a challenge.

A lot of government projects have been announced but this has yet to translate to the expected boost in CV sales. 

There is always a lag time between announcement and execution. Freight rates have not gone up, though there has been a rise in fuel prices. Due to this, there is consolidation in the industry and a lot of big players will play a wait-and-watch game or form alliances to hedge against further downtrend, said Malhotra.

On the other side, small CVs and LCVs continue to see demand pull, as they are used for transferring of essentials. Besides, demand in the rural market is good. These vehicles are also a low cost investment, with low risk factor; finance is available easily, says Malhotra.

In a developed country, the ratio of heavy trucks to light CVs is normally 1:3. In India, the ratio is not even 1:2, which means there is more room for growth in LCVs. 

Umesh Revankar, managing director at Shriram Transport Finance (STFC), one of the country’s largest CV financiers, agrees. He believes his company should be able to grow 10 per cent over the previous year on used vehicle disbursements. To support the target the company has decided to increase penetration in rural areas.

The total in assets under management (AUM) of the new vehicles business at STFC during quarter ended June dropped by 5.7 per cent to Rs 11,450 crore, from Rs 12,137 crore in the same period last year. However, the AUM for used vehicles grew by 6.7 per cent to Rs 89,021 crore.

Shamsher Dewan, vice-president at ratings agency ICRA, said demand for used vehicles had also come under pressure. However, the extent of decline was not as sharp as with new vehicles. This is because the steady increase in prices of new vehicles has led to some shift in demand for used vehicles, especially from small fleet operators. Buyers of used vehicles are typically small fleet operators that operate on inter-state routes and not so much on national highways. These cater to the daily requirement load category and in agriculture, not so much for large corporate customers.