Most commercial vehicle segments in India are expected to show growth in 2015. A stubborn inflationary pressure, however, is also likely to bring new risk factors this year, writes BHUSHAN MHAPRALKAR.
Freight rates rose in June 2014. At around the same time, dealer inquiries edged up. Both these developments signalled a return to growth. It was perhaps too early to read all the changes, though. The head of the new government at the centre stressed the need to stimulate the economy. A big announcement came in October 2014, in the form of the de-regulation of diesel.
This was followed by a reduction in the price of diesel, which has resulted in better earning potential for transporters. According to analysts, there has been a 60 percent growth in sales in the heavy commercial vehicle (HCV) segment.
They also claim that, in the next six months, the light commercial vehicle (LCV) segment will start seeing growth. They are of the opinion that usually the heavy-duty truck sector sees the signs of recession, as well as the signs of revival, much earlier than the light and medium sectors.
New growth areas for the commercial vehicle sector are expected to come from non-traditional avenues such as e-retail.
With the economy looking up, gradual improvements in fleet utilisation levels are taking place. Add the reduction in diesel prices to this, and the result is a stabilisation of the environment for operators. The demand for new, more-efficient and reliable vehicles is expected to drive sales, although the current trend indicates that most of the demand is coming from the replacement side.
Deepesh Rathore, director of Emerging Markets Automotive Advisors, predicts that the LCV sector will have a good year in 2015, drawing attention to the entry of new players such as the Maruti Suzuki.
Improvements in the market should be complemented by an improvement in the financing environment, which had become challenging (at least for small fleet operators and first-time buyers).
According to Eric Nesselhauf, MD and CEO of Daimler India Commercial Vehicles, “It is only a question of time – growth will come.” He estimates an optimistic growth rate of 20 to 25 percent for the truck industry; a ten percent growth rate for the medium-duty segment; and around 20 to 25 percent for the heavy-duty segment. He expects the growth rate of the bus industry to be in the region of ten percent.
In 2014, the bus segment dropped by three to four percent on average. In what could be termed as a slow return to growth in November 2014, the light commercial vehicle passenger carrier category recorded a
15,65 percent growth in sales.
The numbers were not as strong as trucks – 2 335 units were sold in November 2014, compared to 2 019 units in the corresponding month the previous year. The medium and heavy vehicle passenger-carrier category recorded a 9,07 percent decline in sales in November 2014 – with 1 665 units sold, compared to the sale of 1 831 units in the corresponding month in 2013.
The bus segment, which contributes nearly 13 percent to industry sales, is also set to witness an improvement in sales after various state road transport undertakings recently placed orders for new buses.
Financing difficulties are, however, expected to continue for some time to come. The Reserve Bank of India (RBI) governor, Raghuram Rajan, did not change the interest rates on December 3, 2014. He refused to budge, despite pressure on him to cut rates.
HSBC, in its Emerging Markets Index (EMI), released on December 5, 2014, mentioned that manufacturing operating conditions in India improved in November 2014, supported by stronger growth of output and new work intakes.
Foreign orders and buying activity also rose, while employment remained broadly stable. Inflationary pressure intensified, however, the report stated. While India was the only market among the emerging economies to post faster growth since June 2014, the EMI mentioned that emerging-market growth fell to a six-month low in November 2014.
While 2015 is set to bring growth, there will also be risks. New models and new players are expected, which will lead to an increase in competition, at a time when the market has just emerged, or is emerging, out of the red. Hopefully, the better part of 2015 will be spent watching most commercial vehicle segments return to growth.
As regular readers of FOCUS know, this magazine has been appointed an associate member of the International Truck of the Year (IToY)! FOCUS is the sole South African magazine to have joined this prestigious body. One of the advantages of this association is access to exclusive articles, specially written for FOCUS by ITOY jury members. This is one such article.
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