After hitting rock-bottom in the last two years, truck sales may be troughing out, prompting manufacturers to cut discounts. Medium and heavy commercial vehicles (M&HCV) are seeing better demand since November probably due to a rise in freight rates and drop in prices after a 4% cut in excise duty. A calibration of production levels by the manufacturers could also be one of the reasons.
A Tata Motors dealer confirmed to FE that in some parts, discounts on heavy trucks have come down from R2 lakh to R1 lakh, while prices have correspondingly gone up. “The company, however, is still maintaining lower production levels in order to control inventory,” the dealer observed. A Tata Motors spokesperson told FE: “We are cautiously optimistic about an upward trend in freight rates and are ready to cater to any demand. Our production plans are constantly calibrated, keeping in mind the estimated demand, stock in the channel and at the company level, along with other key considerations.” The recovery in demand is partly the result of increased agricultural goods movement.
Truck rentals on trunk routes remained firm in March after gaining 8-10% YoY across January and February 2014 on increased arrivals in the ‘mandis’ and higher despatches from factories, an IFTRT monthly report said.
Ambit Capital believes discount levels could fall further. “The discount levels, in spite of remaining high (on an average close to 15% of the average selling price for heavy duty truck models), have started to moderate in the last one month (after reaching peak levels in 3QFY14),” the brokerage wrote in a research report. It added that the moderation in discount levels have also been facilitated by a reduction in the excise duty rates. There is general expectation that the discount levels could moderate further with a recovery in demand.”
The Automotive Component Manufacturers’ Association of India (ACMA) expects CV volumes to rise 7-8% in FY15. “The production schedules of CV makers is holding up in April. Usually, after March, there is a crash in the first quarter, but now there are some positive signs though one should not get too excited yet. The real improvement will happen when mining and construction sectors pick up,” said Harish Laskhman, president of ACMA and MD of Rane TRW Steering Systems. In each of the last two fiscals (FY13 & 14), M&HCV sales declined by over 20%, which is why even a modest upswing in sales will take time to stabilise; so even if the CV market improves by about 10% in FY15, it could take two more years before it regains the peak of 8.09 lakh units that it touched in FY12. Total CV volumes(including LCVs) fell 2% in FY13 to 7.93 lakh units and slipped a further 20% in FY14 to 6.4 lakh continued…