Is the bump-up in commercial vehicle sales?

Posted by admin | September 4, 2017 | Blog

A strong pullback in commercial vehicle (CV) sales in August, supported by a turnaround in truck rentals, was a positive surprise. But does this signal a turnaround in demand for CVs, which was sluggish for the most part of the year so far?

Market leader Tata Motors Ltd’s CV sales jumped by 34.5% year-on-year after several months of sluggishness and even contraction. Even No. 2 company Ashok Leyland Ltd clocked a 25.1% sales jump. This was led by a sudden rise in medium and heavy commercial vehicle (M&HCV) sales. Manufacturers had to restock dealers with the new BS-IV emission-compliant vehicles.

In its media release, Tata Motors said the 52% jump in M&HCV sales in August was due to a combination of factors like increasing acceptance of the new technology, replacement demand driven by stricter implementation of stringent norms for overloading, and growth in demand for construction tippers. Likewise, Ashok Leyland’s 29% demand jump in M&HCV sales too was partly due to higher demand from the infrastructure sector.

Market leader Tata Motors Ltd’s CV sales jumped by 34.5% year-on-year after several months of sluggishness and even contraction. Even No. 2 company Ashok Leyland Ltd clocked a 25.1% sales jump.

Other manufacturers like Eicher Motors Ltd and Bharat Benz (Daimler India Commercial Vehicles Pvt. Ltd) too reported decent sales growth.

Meanwhile, another positive factor is that after nearly four months, truck rentals threw up a surprise, growing 1.5% in August, on the back of a small diesel price hike. If it sustains and if fleet utilization improves, it could improve the fleet operators’ confidence to buy trucks. However, the moot question is whether the rentals have risen due to a temporary growth in movement of goods— raw materials and finished products—after a lull in the earlier months when industry was aligning with the goods and services tax (GST).

In fact, gross domestic product numbers for the June quarter slowed down to 5.7%, which was explained by distortions in production and supply due to GST. According to the Indian Foundation for Transport Research and Training, the festive cheer in the coming months and the annual festival bonuses along with a pent-up demand that was deferred due to GST alignment may trigger demand for goods in the near term. This may see the rise in truck rentals continue for some time. But again, the question is: will it sustain?

Talking about economic growth, a report by Kotak Economic Research says, “While we expect the growth to have bottomed out in 1QFY18 with a gradual recovery ahead, constraints in the form of low capacity utilization, private sector debt overhang, fiscal limitations and weak exports will keep the recovery muted.” If this is true, then the surge in CV sales may be tempered sooner than later.

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