Used-CV sales surge on rural demand uptick, health ministry guidelines

Small Commercial Vehicles and Light Commercial Vehicles are buoyant, Medium and Heavt segment yet to see traction

After a lull due to the lockdown, used commercial vehicle sales are now back, led by Small Commercial Vehicles (SCVs) and Light Commercial Vehicles (LCVs), while the Medium and Heavy Commercial Vehicles (M&HCV) are yet to see traction.

This comes on the backdrop of the rural economy opening up, and the increase in the demand for essential commodities, which is pushing freight rates. According to industry representatives, demand is coming mainly from the owner-cum-driver.

The development comes amid the current Covid-19 crisis, which led to an unprecedented lockdown across the country, and has been described as the worst in the century. Reports said over half the 3.5 million trucks carrying “non-essential” goods are stranded on the highways amid the lockdown.

Bulk new commercial vehicle during March dropped by 88 per cent, according to SIAM. The reasons for the decline include slowing economic growth, current overcapacity in the CV ecosystem and a not-so-benign financing environment, with challenges further aggravated by the recent and rapid spread of novel coronavirus. 

The demand headwinds are likely to continue over the near term, given the macroeconomic challenges in view of the recent pandemic outbreak, the weakening financial profile of fleet operators and significant price hikes because of the transition to BS VI norms, says Icra.

As far as used vehicles are concerned, lockdown sales have almost come to nil not because demand has slowed down, but because people aren't able to move out, and RTOs are not functioning.

Sameer Malhotra, Chief Executive Officer at Shriram Automall India Ltd, which claims over 50 per cent market share in the organised used CV sales, says ever since the lockdown, sales have dropped by nearly 90 per cent. 

Monthly used-CV sales would be 30,000-35,000 for the industry. The big challenge was that RTO services had come to halt, and people were not able to move out as well.

After introducing digital bidding, the company reported sales of 8,000-9,000 a month, led by SCVs and LCVs up to 10 tonne. The M&HCV segment is yet to see major momentum.

Malhotra says demand is driven by rural economy, movement of essential commodities and the Ministry of Home Affairs (MHA) guidelines which will allow some manufacturing activities to start on April 20. He expects the industry will do some 25,000-30,000 units in July and by end of the year it will surpass last year's number of 30,000-35,000 units a month.

The company has started discussions with RTOs and state governments for faster registration, innovative delivery process, various digital payment options, new digital bidding processes, financing options, new rural and green districts customer reach programmes, among other things.

Umesh Revankar, MD & CEO, Shriram Transport Finance, the largest financier of commercial vehicles in the country said due to the shortage of drivers, the  demand for individual operators has increased, leading to an increase in freight rates as well.

Quoting reports, he said, FMCG sector is giving 25 per cent more freight to improve supply chain, while for perishable movement the freight rate increased by nearly 50 per cent.

At present the used vehicle owners have got an edge and they will continue to have it till the drivers come back, which will take few months. This inturn will push the demand for buying and selling, but the challenge remains is people need to come out, availability of finance, opening of workshops among other factors.

Shamsher Dewan, Vice President, ICRA Limited added the used truck segment is equally impacted because of the economic slowdown and resultant capacity surplus in the CV fleet. However, there has been some shift in favour of used trucks because of the sharp rise in prices of new trucks over the past 2 years. This has supported prices of used vehicles to an extent. Additionally, the viability of used vehicles remain better compared to the new vehicles because of low cost of ownership.