Truck sales have always been the most accurate barometer of the country’s economic health. Manufacturers need trucks to send their produce to distant markets, miners to transport raw materials, exporters to rush their merchandise to ports and farmers to take their output to the mandis. Every macroeconomic indicator suggests truck sales ought to be in the dumps — manufacturing indices are down, foreign trade has slumped.
Numbers put out by the Society of Indian Automobile Manufacturers suggest that this is indeed the case — commercial vehicle (truck and bus) sales fell over 13 per cent to 60,642 in April and May 2009 from 69,767 in the first two months of the previous financial year. Careful analysis of the data, however, shows that not all segments of this market have gone bust and there have emerged of late distinct signs of a recovery.
The commercial vehicle market has three segments: Heavy commercial vehicles, light commercial vehicles and buses. Heavy commercial vehicles are used over long distances, light commercial vehicles ply on shorter routes, often inside a city. Buses are bought in large numbers by tour operators as well as state governments and now cities.
While the sale of heavy commercial vehicles, which account for more than half the market in value, fell 45 per cent to 18,563 during the two-month period (April and May 2009), light commercial vehicle sales grew 18.3 per cent to 31,172 and bus sales grew 12.5 per cent to 10,907. Bus sales of 5,739 in May were better than 5,168 in April, though light commercial vehicle sales fell to 15,268 in May from 15,904 in April. Most important, heavy commercial vehicle sales improved from 8,770 in April to 9,793 in May.
This, mind you, is happening at a time when a large number of repossessed trucks have been dumped in the market by non-banking finance companies. Some 40,000 trucks were seized after their owners failed to repay the loans they had taken. These trucks have been sold in the market, often at half the price. Several of these were brand new machines.
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Truck operators say there is a pick-up in orders from various commodity groups like coal, iron ore and cement. The wheat harvest too added to orders, though farm produce is seldom transported beyond 300 km. As a result, truck rentals have gone up 10 to 12 per cent since March, though they have softened about 4 per cent in the last three weeks. Non-banking finance companies, which play a huge role in the financing of truck purchases, are more liquid now and interest rates too have come down. They are refinanced by banks which have better cash reserves and are less risk-averse than six months ago. This, perhaps is the reason for the recovery in heavy commercial vehicle sales in May over April. For light commercial vehicles, used for lugging goods over short distances, the market has held steady for some months now.
For buses, the stimulus of large purchases under the Jawaharlal Nehru National Urban Renewal Mission has helped immensely. The initial projection was that orders for 14,500 modern buses will be placed by cities across the country. To put the number in perspective, around 62,000 buses were sold in the country in 2008-09. So far, close to 8,000 low-floor buses have been ordered and another 6,500 are in the pipeline. Commercial vehicle makers have been told informally by the government that more orders could follow within the next 18 months or so. Most of these orders are for fully-built buses. As a result, some business has shifted from local body-builders to the large commercial vehicle makers.
The buoyancy can be seen right through the value chain. Tyre sales have been steady in the last six months. Though industry statistics for April and May 2009 are not available, makers of bus and truck tyres say they have no reasons to complain. Dealers will tell you that there is a shortage of 5 to 10 per cent in the market place. Though price tags have not been raised, all discounts have more or less been withdrawn. And the country’s top nylon tyre cord-maker, SRF, says production lines are fully booked for June and July will be no different. In the past, July has always been a lean production month for SRF.
What has helped tyre producers is that in November 2008, the government put the import of bus and truck tyres on the restricted list. Dealers at that time were importing up to 130,000 tyres a month — 13 per cent of the domestic production capacity of around1 million tyres. The domestic industry had lobbied hard to block these imports as their low prices had begun to bleed them. This was like manna from heaven.
Moreover, these imports were of radial tyres, while India makes mostly cross-ply tyres. As radials give almost twice the mileage, the ban on imports has been doubly beneficial for the local makers — tyre replacements now happen in half the time! As a result, imports have come down to almost zero. This has been a very significant contributor to the buoyancy in tyre sales in the replacement market. Tyre producers couldn’t have had it better — profit margins in the replacement market are much fatter than on supplies to truck-makers. The indications are good. Keep your fingers crossed.