Commercial vehicles sector sees light at the end of tunnel

BUSINESS LINE, DEC 30

Manu P. Toms

Mumbai, Dec. 30

The commercial vehicle industry, which took a battering for much of 2008 and 2009, has reason to believe that the worst is over now.

Sales of buses and trucks, which had hit the bottom of the barrel last year, have now been improving month by month. “The commercial vehicle industry is heading for an overall 10 per cent negative growth in 2009.The current indications suggest a 20 per cent growth in 2010.

However, it is still lower than the 2007 levels,” said Mr Somnath Bhattacharjee, Vice-President, Sales & Marketing, Volvo Eicher.

Commercial Vehicles

Unlike the passenger vehicle sector, which staged a quick turnaround following the Centre's stimulus package, commercial vehicle sales have been trailing from the year-ago period till August this year. “This industry is the first to be hit in a downturn and the last to recover,” quipped Mr Dilip Chenoy, Director-General, Society of Indian Automobile Manufacturers.

Incidentally, LCV (light commercial vehicle) sales are back on track with a 20 per cent growth while medium and heavy CVs, which were the worst hit, are still not out of the woods yet.

“Although the cut in excise duty, reduction in interest and greater liquidity brought down the acquisition cost, stricter appraisal norms for getting truck loans hit vehicle financing. Truck operators, particularly, first time buyers found it difficult to get finance,” said Mr Bhattacharjee.

According to him, the lower increase in freight rates (around five per cent instead of 10 per cent in a normal year) hit the bottom line of fleet operators who did not buy as many trucks as they would have normally.

In addition, the slowdown in construction and mining and delays in awarding mining licences and construction projects affected sales of tippers and dumpers, says an Ernst & Young report on commercial vehicles.

The year also saw manufacturers either keeping projects on hold or walking out of joint ventures. For instance, the Hero group parted ways with Daimler in their proposed commercial vehicle alliance.

Likewise, the LCV joint venture between Ashok Leyland and Nissan is now in the stage of “optimising investments and using available facilities (read as the Leyland plant in Hosur and the Nissan unit near Chennai) in the first phase”.

The positive news in the year included Tata Motors launching its World Truck series while VE and Mahindra Navistar will follow suit with their new range next year. The Centre-sponsored JNNURM (Jawaharlal Nehru National Urban Renewal Mission) subsidised bus purchases by municipal corporations which led to over 10,000 vehicles being procured by civic bodies.

It now looks as if 2010 augurs well for the industry. “The general sense of optimism is increasing with each passing month.

The increase in foreign capital inflows is positive for the economy which is showing signs of revving up again. And this is great news for the commercial vehicle industry which is dependent on economic activity,” said Mr Rakesh Batra, Automotive Sector Leader, Ernst & Young, India.