Bus and truck makers, who defied economic slowdown in the first two quarters, worry about being hit by production drop in major sectors.
The recently released Index of Industrial Production (IIP) data, showing steep fall in production in areas such as manufacturing, mining and capital goods, has sent alarm bells to truck and bus manufacturers.
Commercial vehicle (CV) sales, growing at 20 per cent so far this year defied the laws of its direct correlation with growth in gross domestic product. Strong demand for light trucks, continued buoyancy in freight rates and sustained activity in certain infrastructure development projects pushed the overall demand.
Sales of trucks and buses stood at 499,965 units for April-November against 416,800 units sold in the same period last year. Passenger vehicle sales (of car, sport utility vehicles and vans) during the same period remained flat.
Worrying signs
Ravi Pisharody, president, CV business unit, Tata Motors, said, "Freight rates are levelling and this is worrying us. The current positive demand trend can continue only for the next two to three months."
High interest rates, rise in fuel price and slowing economic activity would moderate growth in the medium and heavy CV segment. The ban on mining activity in Karnataka has already impacted the business of heavy duty trucks and tippers, stated a business review of Tata Motors, India’s biggest CV maker.
Also, bus sales growth has flattened, with a lack of orders from public sector undertakings under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). Bus sales stood at 60,860 units, as against 61,323 units in the April-November period last year.
R Seshasayee, executive vice-chairman, Ashok Leyland, said, "We are witnessing some sluggishness in demand, a result of accumulation of several policies in the last few months. CVs are still doing well, particularly light CVs. That is because the retail market is still doing well. The fast moving commercial goods and white goods demand is still buoyant. But I see this petering. I am beginning to see rural demand petering, too. We are certainly near a tipping point."
Light trucks better placed
Market watchers say that since truckers are able to pass on the rise in a variety of costs such as fuel and interest costs directly to the consumer, unlike the car owner, demand for trucks had been growing.
"No doubt powerful truck unions have been able to keep rentals at a tight level and, therefore, passing on cost escalations, including increase in diesel and tyre prices. The rise in demand for new trucks in November confirms the buoyancy in freight market," said a note from the Indian Foundation of Transport Research and Training.
Further, better rural demand and a sustained push from financial institutions for making vehicle loans available has managed to keep the demand high for light trucks. Tata Motors, with the Ace family of mini trucks, is one of the largest beneficiaries of this demand growth.
However, with the cost of retail loans rising and rural demand sliding, experts say demand for light CVs will come under pressure, especially when the government spending in these areas gets reduced. Freights rates are also expected to climb down as demand slackens.
Tata Motors with a 59 per cent share of the CV market, saw a growth of 22 per cent in sales till November with 55 per cent of those coming from LCV models. It sold 293,061 units as compared to 240,571 units last year.
Ashok Leyland, India’s second-largest commercial vehicle, making the company’s absence in the light truck segment, has impacted its numbers. The company saw sales drop 1.6 per cent during the same period with sales of 49,342 units as compared to 50,212 units last year.
