At a time when passenger vehicle industry is battling with fragile recovery in demand, commercial vehicle (CV) industry is reported to be seeing some stable recovery with medium and heavy duty vehicle segment (16-tonne and above) leading the recovery cycle.
The CV industry believes that the worst is behind it, and the recovery is real. After two worst years of down cycle, volumes across CV categories are showing gradual growth. The medium and heavy duty vehicle segment (M&HCV) has particularly shown strong sales growth, and is getting into a stable growth curve. The complete recovery i.e. growth in volumes across categories, is expected to happen during the second quarter of the current fiscal.
The first two years (2010-12) of this decade were strong for the M&HCV industry with a CAGR (compounded annual growth rate) of 12 per cent. However, the decline in volumes during 2012-13 and 2013-14 was very steep on the back of stalled infrastructure projects, general slowdown in industry, and a ban on mining activities.
Normally, in CV recovery cycle, heavy segment sees the revival first and followed by other segments such as medium and light. Though LCV (light commercial vehicle segment) continues to see subdued demand, the mid-term growth outlook is positive due to proliferation of hub-and-spoke logistics models.
With positive growth over the past five months, M&HCV segment has registered a rise of seven per cent in its total volumes at 102,000 units during April-October 2014 when compared with 94,993 units in the year-ago period, driven by strong volume growth in heavy trucks.
The recovery of the CV industry is closely linked to so many infrastructure and consumer sectors. Freight rates are among the key factors that aid demand growth. The cost of transporting goods remained firm during April-October 2014 period, and is a positive for the CV segment.
With economy looking up, gradual improvements in fleet utilization levels and cut in diesel prices are expected to stabilize the operating environment for operators. This is likely to drive demand for new vehicles. Presently, most of the demand has come from replacement segment.
The M&HCV segment to register a high single-digit or low double-digit growth for the present fiscal, though overall growth in the CV industry may be subdued due to weak LCV demand.
So, while the stable recovery is on cards for the CV industry, the competitive landscape is also expected to change in M&HCV segment. Over the past few years, significant investments have been made by both domestic and international OEMs in developing or upgrading their product portfolio. Local players such as Tata Motors and Ashok Leyland have upped their ante with international quality product portfolio and improved sales and service business in a bid to protect their turf against new players. Two new players – VE Commercial Vehicle and Daimler India Commercial Vehicle – are expected to heat up the competition with their Pro Series and BharatBenz trucks respectively.
There has also been increased emphasis on TCO (total cost of ownership) rather than initial price in the truck segment.
Though heavy discounts are offered for new purchases, TCO has become a key purchase influencer in the coming years, paving the way for gradual increase in share of modern trucks playing on Indian roads.