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: Industry experts believe that recent government measures aimed at diluting the liquidity crunch will not help in boosting the ailing commercial vehicles market.
"Exports are down and so is domestic activity. Commercial vehicles have to be moved, as we are talking about buyers who look at paying equated monthly installments (EMIs) from the business they do," said Abdul Majeed, auto analyst and partner, PricewaterhouseCoopers (PwC). "There have been cancellations in export orders and payments have also been delayed. These have direct repercussions on demand for commercial vehicles," he said.
Majeed also noted that demand for commercial vehicles is heavily dependent on performance of infrastructure and organised retail sectors, which have been hit by the slowdown.
Corroborating the same, V Ravi, chief financial officer, Mahindra & Mahindra Financial Services Ltd, said, "The outcome of measures taken by the government will solely depend upon revival of demand in the vehicle market, which is currently negative. Just providing liquidity is not enough. Interest rates, which are currently hovering around 15-17%, have to be pulled down by 150-200 basis points."
Over the last year, the commercial vehicle market has witnessed a dip of around 20%; for the last quarter ending December 31, 2008, the dip was as high as 50%. In line with falling demand, major commercial vehicle makers like Tata Motors, Mahindra & Mahindra (M&M) and Ashok Leyland have, over the last two months, announced production cuts to avoid inventory build-up.
Indicating that it is too early to gauge the impact of recent measures top boost liquidity, Ravi said the picture will be clearer in another 7-10 days.
The automobile industry has been affected by the credit crunch and cost of retail financing for a while now, with banks being reluctant to grant loans. This has prompted enhanced activity by financing arms like Mahindra Finance and Tata Finance.
The accelerated depreciation of 50% to be provided for commercial vehicles purchased on or after January 1, 2009 up to March 31, 2009, announced by the government on Friday, is expected to boost sales to some extent.
"This measure will bring down income tax liability by roughly over 10% and will also help boost demand," an industry source said. However, reiterating that demand for commercial vehicles depends upon overall economic activity, Majeed said, "Companies are postponing their capex plans as they want to hold on to the cash position and any buy would mean forking out huge...
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