Trucks & Dumpers
For the last two years, the Indian commercial vehicles (CV) industry has been seeing negative growth. According to an ICRA report, the domestic commercial vehicles (CV) industry is likely to close 2014-2015 at 636,000 units, reflecting a 19.7% degrowth over the previous year.
A turnaround in the CV sector will be slow, and recovery in terms of fleet utilisation and improved margins for vehicle operators similar to FY09 level looks unlikely before Q1 2016 says a latest report of India Ratings & Research (Ind-Ra).
This change was driven by a slowdown in the industrial production and insufficient contraction in CV sales. "This has resulted in fleet under-utilisation and affected CV operators’ ability to negotiate higher freight rates in spite of rising fuel costs, impacting both revenue and margin of operators," said Arvind Rana, associate director, structured finance at Ind-Ra.
The domestic CV industry is currently going through one of its longest down cycles in recent periods. Having witnessed a decline of 2% in 2012-13, the industry volumes have contracted by a sharp 19.7% in 2013-14. But despite these figures, the Indian CV makers are leaving no stone unturned to bring out better vehicles in their attempt to convince prospective buyers.
According to Rama Rao A S, senior VP, (sales, marketing and aftermarket), VE Commercial Vehicles, “In the highly competitive heavy commercial vehicles (HCVs) market, manufacturers go all out to give value addition to their product with added special features to differentiate themselves from the competition and have an edge over them. Ultimately these special features enhance the profitability by way of increasing the fuel efficiency and reduced maintenance cost.”
In the CV space, customers make choices in a quest to lower their overall total cost of ownership (TCO). Other factors include vehicle robustness, fuel economy, cost of aggregates, warranty, finance, resale value.
R N Rao, director (marketing), AMW, says, “We operate on the belief that innovation must mean several things for the customers. While aesthetics are important, so are operational efficiencies, TCO, safety, driver comfort, etc. We were among the first to introduce crash tested cabins and air-conditioning as standard fitment for our cabins. Among our advantages are the customised build for a wide range of applications and continuous product upgradation to keep ahead of the industry curve.”
Meanwhile, most CV makers are banking on the new government to provide an impetus to the industry by pushing infrastructure and mining projects. Rao of AMW says that since a majority government is in place, business outlook seems positive. “The medium & heavy commercial vehicles (M&HCVs) sector is closely linked to the core infrastructure sectors and we expect the new government to quickly take steps to revive growth. We believe that a decent monsoon may see revival in demand and the announcement of policy reforms and speedy implementation in mining and infrastructure sectors will be of great help to the industry.”
R. Ramakrishnan – senior VP (commercial), commercial vehicle business unit, Tata Motors says, “It is too early to predict what is to come. We hope that a stable government will drive reforms to promote investment, develop infrastructure, revive mining and undertake tax reforms, which will help demand in the medium and long term.”
Usually January-March are good months for automobile companies, particularly for commercial vehicles, as customers are known to buy vehicles from the new models launched the same year, which commands a better resale price. Original equipment manufacturers (OEMs) are waiting for customers who had deferred their buying plans to come back. It’s a general opinion that although there have been postponement to those replacing old vehicles with new, it cannot be pushed indefinitely.
The nature of the cycles has also changed over the years. Earlier the industry used to be small and growing at twice the rate of GDP growth. Then the cycles happened every seven years and lasted a year or two. "Now the volumes are high, there are more players, larger vehicles, and growth rates are normally four times the GDP growth. This has distorted the cycles, and they are more frequent and deep," says a spokesperson at a leading truck financing company.
Although the government is keen to kick-start the economy — and according to SIAM, the automotive sector accounts for 22% of the country’s manufacturing GDP — it is not clear if it will cough up the thousands of crores that this scheme will entail, considering the fiscal deficit targets it has set for itself.
The biggest concern for the CV industry is the challenging macro-economic environment in the country. It is difficult to predict exact macroeconomics, as this is not really an automotive issue. The current economic downturn includes concerns around potential food inflation, the value of the rupee, including other key elements like fuel prices. “While we continue to see stress in infrastructure, construction and mining, it is important there is growing investment in the country and a rational look at taxation across industries, including automotive. In therecent months, risk aversion, stringent norms from financial markets have affected the segment,” says Ramakrishnan of Tata Motors.
Though fundamental drivers of the industry have not changed, key stakeholders will need to re-calibrate their strategies to be in tune with a market that has shifted into a lower gear. For instance, Volvo is leading the way with modern and intelligent transmission technology with I-SHIFT gear box in its CVs.
Having the right gear for the right speed at the right time is what the I-SHIFT transmission technology is all about. By continuously monitoring the road gradient, vehicle speed, acceleration, torque demanded and other operating conditions, the gear box can predict and select the appropriate gear for efficient utilisation of the engine. This transmission technology has set a new standard which increases fuel economy, safety, and is driver-friendly. It is termed as automated manual transmission (AMT), which delivers increased level of productivity with maximised driver comfort, safety,payload capacity and fuel efficiency.
Rao of AMW says that his company’s R&D closely works with the customers and ensures that they anticipate customer requirements and also use learnings from customer experiences to design new products and enhance capability.
The company simulates real life situations and conducts extensive field trials for product testing and performance. CV manufacturers have to plan for a broader horizon rather than aiming for short term gains. They will need to look at providing the customers more appropriate transportation solutions by consultative selling so that the customers can benefit from it. The current slump in the industry has forced a lot of vehicle manufacturers to offer huge discounts on vehicles thereby impacting the overall growth prospects of the CV sector while undermining the value of trucks with customers. The CV industry should have a structured framework with stable and transparent regulations in order to create a healthy and conducive environment for growth.
Dr PawanGoenka, executive director & president, automotive & farm equipment sectors, Mahindra & Mahindra, said, “For us to break even and just to put some numbers, we think that we need about 10,000 truck volumes, and about a similar number 10,000-12,000 of LCV volume. We need that and we need this madness of discounting to become more reasonable. If these two things happen then that business also breaks even which means we need about 8% market share in trucks. In this business, nothing is in our hand in some sense both the discounting as well as the volume growth which will depend to a large extent industry growth is outside our control. So these two businesses, both are money losing, both require about similar kind of improvement in volume and margin but totally different factors – one, totally internal and one totally external.”
For the quarter January-March 2014, Mahindra has the scheme of arrangement for the merger of the trucks business of M&M’s subsidiary, Mahindra Trucks and Buses (MTBL) with M&M that was approved by the Bombay High Court on March 7, 2014. It has been given effect to from April 1, 2013. In view of this the financials of the trucks business of MTBL became a part of the current year financials of the company.
After giving effect to the merger, the net profit after exceptional items and tax for the quarter is `968 crore, as against `963 crore a year ago. Manufacturers are also applying green in their vehicles in keeping with the norms.
For instance, VECV, in its mining segment competes with other European manufacturers. “The fuel efficiency depends heavily on factors such as loads, gradients, road conditions, lead distances, etc. Each of these parameters keeps constantly changing thereby impacting the fuel efficiency. Drivers too play an important role in determining fuel efficiency and this is what fuel watch brings out,” says Rao.