The decline in commercial vehicle sales were arrested in December at 14.8% y-o-y, even as excess capacity and weak freight rates capped interest from fleet operators. The fall in truck sales was driven by medium and heavy commercial vehicles (M&HCVs). During December, volumes of Tata Motors and Eicher’s VECV declined in the range of 13-14%, while that of Ashok Leyland fell by over 30%. Tata Motors president for commercial vehicles Girish Wagh said increasing enquiries and lower stocks augur well for future volumes and realisation, early indication of which can be seen in December.
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Analysts said the retail sales of commercial vehicles (CVs) for Tata Motors came in higher by 13% over wholesales as stock reduction continued in the system. The decline in the sales of CVs continued, albeit at a slower pace as the weak economic growth, slowdown in the consumption and increase in axle load norms added 30% additional capacity in the system. Till fleet operators continue to have surplus capacity, the industry is unlikely to see a revival in demand. Rating agency Icra is of the view that the M&HCV (truck) segment has been significantly impacted over the past year, with volumes contracting by a sharp 41% in YTD FY20.
“Excess capacity created in the system post-revision of axle load norms in July 2018, coupled with slowdown in the economy and infrastructure projects and the resultant lower freight availability continue to weigh on the demand prospects. The LCV (truck) segment also continues to reel under the impact of slowdown in consumption demand, in both rural and urban areas, which has impacted freight availability significantly,” said Icra in a note. In addition to these factors, weak credit availability continued to be challenge, with credit norms being tightened amid elongation of collection cycle and rise in delinquency levels.
Interestingly, on a month-on-month basis, the sales are showing improvement. Sales of CVs for Tata Motors were up 13.8% as compared to November 2019, while it was up 9.8% for Ashok Leyland. According to Motilal Oswal, wholesale despatches for Ashok Leyland were 11,200 units, up 10% month-on-month (m-o-m) but down 28% year-on-year, were above estimates. However, a recovery in the M&HCV segment is key for a turnaround in the fortune of the industry. Analysts believe that the m-o-m improvement is a sign of pre-buying and that there could be a better pick-up in the March quarter if infrastructure spend picks up. Given the sharp contraction in M&HCV (truck) volumes during year-to-date FY20 and inventory correction being undertaken by CV makers, Icra is of the view that volumes could contract by 16-18% for the full year.
Both automakers and auto component suppliers have been urging the government to fast-track the implementation of the scrappage policy, which seeks to phase out vehicles over 15 years old. The policy is awaiting clearance from the Cabinet. Analysts at Nomura believe the scrappage policy to be one of the key catalysts along with economic growth and pre-buying towards the end of FY20. “Scrappage demand could be more than 1,00,000 vehicles,” the report said.