During April-August 03, the industry registered a volume of 91,183 units as against 71,350 units in the corresponding period of the previous year, thus posting a growth of 28 per cent. This is on top of the 40 per cent growth witnessed in 2002-03.
Leading NBFC Sundaram Finance has the following to say in its recent annual report under the managements discussion and analysis: ...cheap credit appears to have been one of the key factors contributing to the growth during the year (2002-03). Growth can be sustained only if it is based on the other traditional demand drivers as well, namely, overall growth of the economy, availability of freight, remunerative freight rates, ready availability of credit, and increased usage of road transport. Low interest rates, to the exclusion of the other factors above, as a primary driver of demand could lead to the creation of excess capacity of the like witnessed in the mid-90s with disastrous consequences.
After touching a record volume of 2.35 lakh vehicles in 1996-97, the industry suffered one of the major reverses in its history with the sales dipping to as low as 1.59 lakh vehicles in 1998-99 due to the massive build up of excess capacity. It took the industry five torturous years to absorb the surplus capacity.
Truck dealers say that but for the lower interest rate the current demand would be much lower. The freight rates, they say, have remained flat. Diesel prices have increased putting pressure on the margins and freight traffic has not witnessed any significant uptrend. Under these circumstances increased purchases of trucks would only lead to over-capacity, they add.
Ashok Leyland executive director (finance) T Anantha Narayanan begs to differ. He says that situation today is very different from the late 1990s where money supply coupled with depreciation benefits drove the demand. He recalled how cash-rich lawyers, doctors and chartered accountants bought trucks to avail depreciation and leased it to fleet operators. The commercial vehicle industry which had then increased its capacity was only too happy to push more volumes, he said.
What we are witnessing now is a demand that can be described as an investment related pull. The lower interest rates have only improved the viability of the purchases, he said. Infrastructure projects, better roads, replacement of old vehicles (as the new ones make economic sense due to their efficiency, cost effectiveness and reliability) and a reading that the economy would be buoyant in the near future as a result of good monsoon and election related spending are factors that are pushing demand, he added.
The industry has learnt its lesson from what happened in 1990s. We have begun to monitor the end users. We are also looking out for symptoms of deceleration. We are yet to see it, he added.
Analysts, however, are keeping their fingers crossed hoping that the accretion to the commercial vehicle capacity matches the industrys expectation of economic growth.