With easing of the lockdown, while passenger vehicle (PV) and two-wheeler sales started picking up, sales of commercial vehicles (CV) are still dampened. As per H1FY21 data by the Society of Indian Automobile Manufacturers (Siam), while PV sales were down 34% and those of two-wheelers 38.28%, CV sales were down by 56.01% on a year-on-year basis. In fact, in September 2020, even as PV and two-wheeler sales grew 17.02% and 0.17%, respectively, CV sales declined by 20.13%. However, both analysts and automakers believe that with economic activity picking up pace and with expected GDP growth in Q3 and Q4, the CV turnaround could be round the corner, albeit in varying degrees in different CV sub-segments, such as M&HCVs (medium and heavy commercial vehicles), LCVs (light commercial vehicles), pick-ups, buses, etc.
CV registrations tend to follow GDP growth, and over the last two decades CVs have typically grown at a rate marginally higher than GDP growth on a CAGR basis, despite witnessing a couple of cyclical downtrends, said an auto analyst. “CV sales have rebounded after every significant downturn, whether it was post the global financial crisis in FY09 or the FY14-15 slowdown in economic growth that was accompanied by restrictions on mining in a few states. The most recent headwinds that were already noticeable pre-Covid were due to excess freight capacity on account of improved turnaround time post-GST and the implementation of revised axle-load norms,” he said.
Vinay Raghunath, partner & automotive sector leader, EY India, said the government’s renewed commitments on the National Infrastructure Pipeline (nearly `102 lakh crore and 6,500 projects across sectors) is a positive indicator for the CV segment. “Green shots of recovery across select cyclical sectors (such as mining), coupled with strong volume growth in other sectors (such as e-commerce and consumer goods), can help build a platform for the revival of the CV segment,” he said.
Sanjeev Garg, practice leader, automotive, Praxis Global Alliance, added that when the economic activity and GDP growth happens, CV sales will increase. “CVs will see an uptick with continued efforts by the government’s thrust on infrastructure spending,” he said. Terming Covid-19 as a black swan event for the CV segment, Girish Wagh, president, commercial vehicles business unit, Tata Motors, said it immediately followed axle-load regulations, reduced freight demand, BS6 impact, retail finance constraints, etc. “It aggravated the slowdown the segment was already going through. However, Q2 sales are better than Q1; in fact, in October and November our top line numbers in terms of wholesales were almost equal to those in the same months of the previous year, so we are catching up. In Q4 the segment might perform better than the Q4 of last year,” he added.
At the same time, Wagh said the buses sub-segment will take longer to recover. “Buses, or the commercial passenger vehicles, saw a savage cut of upwards of 80% in H1FY21. But within that, we saw rising demand for ambulances. As and when schools open and corporates revise their work from home policies, I think the demand will return; I also expect state transport undertakings to start looking at fresh purchases, but buses will see the slowest recovery within the CV space.”
Vinod Aggarwal, MD & CEO, VE Commercial Vehicles, added that he expects Q3 and Q4 of this year to have positive growth, and that’s a good sign for CV sales. “Anyway, month-on-month there is growth, so recovery is happening,” he said. “However, even as the movement of trucks has improved, replacement buying is still slow as sentiments are down.”
Kamal Bali, president & MD, Volvo Group India, the CV major, added that while the renewed focus on manufacturing helps, there are many more segments CVs caters to, such as core industries, consumer durables, perishables, agriculture, retail and e-commerce, among others. “Of these, e-commerce and agriculture are performing well. We see the PMI index is rising (at 58.9 in October 2020, it is the highest in a decade) and should witness improved performance in the months to come.”
While PVs and two-wheelers saw increased sales partly due to pent-up demand, Garg of Praxis Global Alliance added that there is currently little pent-up demand in CVs, because of two major reasons. “One, when the migration took place from BS3 to BS4, truck sales shot up in 2017, and moving from BS4 to BS6 the vehicle cost had gone up by `1.6 lakh to `2 lakh, so most consumers advanced their buying before the implementation of BS6 this year.”
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