Foreign automakers struggle on commercial vehicle route: Here's why

Truckmaker MAN, part of the Volkswagen group, decided to shut its India shop last month after 12 years of operations. In June this year, Swedish commercial vehicle maker Scania decided to stop producing luxury buses in India. American truckmaker Navistar exited India by walking out of a joint venture (JV) with Mahindra and Mahindra (M&M) about five years ago. 

In a country where foreign brands control the lion’s share of the car market and over one-third of the two-wheeler market, 90 per cent of the medium and heavy commercial vehicle (M&HCV) market is dominated by domestic players. 

Home-grown brands such as Tata Motors, Ashok Leyland, and M&M together dominate the truck as well as the bus market. The Indian CV market, experts say, is tough and barring a few exceptions not many have managed to get the success formula right. 

Let us look at the numbers: Of the 35,649 units of medium and heavy buses sold in 2017-18, three Indian players — Tata Motors, Ashok Leyland, and M&M — accounted for 80 per cent. 

VECV, a JV between Swedish player Volvo and India’s Eicher Motor had about 13 per cent share, while SML Isuzu (promoted by Japan’s Sumitomo Corporation and Isuzu Motors) had a 7 per cent share. In the medium and heavy truck space, the Indian trio accounted for 88 per cent of last year’s domestic volume of 304,664 units, according to the Society of Indian Automobile Manufactures data. 

BUMPY RIDE IN INDIA

2005: American truckmaker Navistar and M&M enter a JV to manufacture trucks and buses
 

2006: Pune-based Force Motors and MAN Truck and Bus form a JV to produce heavy commercial vehicles
 

2012: Navistar exits JV with M&M 
 

2013: MAN and Force Motors terminate the JV, MAN purchases shares from JV partner
 

2018: Swedish truck and busmaker, Scania, stops bus-building operations in India MAN exits the Indian market

The data excludes the volume of Daimler, which has seen some degree of success in India. Players like MAN and Scania never made their sales numbers public. 

Ravindra Pisharody, who served as executive director of Tata Motors’ CV division, until mid-2017, said the Indian companies had prepared well as they had anticipated the arrival of the multinational company brands. “The products and features offered by the Indian brands are not lacking in any way compared to offers of multinational brands. The foreign entrants have not been able to offer anything superior despite initial claims,” he added.

The appeal of a foreign brand is much lower in the case of CVs while being significantly higher in cars. “The Indian companies have over the years built a strong relationship with customers, and continue to do so. Thus, customers have not found any compelling reason to move away from brands that have supported them over the years. There is a well-established resale price for used trucks of leading Indian players, while the resale prices of MNC brands are yet to settle,” said Pisharody. 

Korean carmaker Hyundai, which is the second-largest player in the domestic car market, was evaluating an entry into the Indian CV space but has not yet been able to firm up its plans. It sells M&HCV as well as light CVs in markets like Korea and China. The management of MAN decided to sell its Pithampur truck-manufacturing unit to the Firodias-promoted Force Motors. 

Erich Nesselhauf, managing director and chief executive officer, Daimler India Commercial Vehicles, said India was “definitely” a tough market. “The sheer size of the country, coupled with its regional diversity is demanding, especially in terms of the sales and service network. Another challenge is the regulatory framework, which is developing in the right direction, but often in an unpredictable manner. And there is a variety of relevant norms and administrative procedures on state levels, which can be cumbersome,” Nesselhauf said. The subsidiary of the German auto major sold about 16,700 trucks in India last calendar year.  

That gives the company a share of about 5 per cent, making it the most successful foreign brand in the domestic truck market. Nesselhauf said the strategy of having a high localisation of over 90 per cent paid off. “We worked extremely hard to understand every detail of this unique market. And we invested heavily in training, both of our own team and of our suppliers, to be able to deliver quality according to global standards”. 

Pisharody said there is no magic formula to crack the domestic truck market. “Customers need to see more value in the foreign brands. But there is a limited success so far,” he added. 

Bal Malkit Singh, promoter of Mumbai-headquartered Bal Roadlines, which has a fleet of over 400 trucks, said the beauty of a Tata or Ashok Leyland truck is that it can be repaired by any roadside mechanic. 

“Both the brands have a nationwide network set up over several decades. The MNCs cannot compete with them on vehicle cost as well as the cost of service and spares”.  Singh said such exits drive more customers towards the domestic brands for whom the Indian market is the primary focus. “I have four-five MAN trucks that are a year old. I don’t think I will find a buyer when I will step out to sell them after three-four years”.