Shed some tears for the commercial vehicle sector too

It is always said that the choice of a car bought for personal use is made by the heart, but in the case of a commercial vehicle it is the mind that takes the call. If media reports of the last two days are any indication, the heart is being given more importance than the mind. Newspapers and television channels have been agog with reports of how car sales have declined for the first time in a decade. Yes, the passenger car segment is in a recession and the figures released by Society of Indian Automobile Manufacturers (SIAM) show a 6.69 per cent fall in volumes for the year 2013/13 over 2011/12.
 
But what has gone mostly unnoticed is the bloodbath taking place in the commercial vehicle space as well. This segment, comprising medium and heavy commercial vehicles (M&HCVs), and light commercial vehicles (LCVs), has shrunk by two per cent in 2012/13 compared to the previous fiscal year. But a closer look at the numbers reveals an even grimmer picture.

The M&HCV goods segment which accounts for the bulk of the volumes - and value for the manufacturers - has seen a quarter of its volumes disappear in just 12 months. Sales in 2012/13 fell to 221,710 units from 299,334 units in 2011/12 - a precipitous fall of 26 per cent. To make matters worse, the passenger bus segment within M&HCVs also saw a decline. Bus demand fell by seven per cent in 2012/13. This has forced major manufacturers such as Tata Motors and Ashok Leyland to cut back production in view of finished vehicles piling up. Share prices of major commercial vehicle players have taken a beating.
 
Experts say that the fortunes of the commercial vehicle sector are directly linked to that of the Indian economy. With GDP growth slowing down to five per cent levels, as well as factors such as high interest rates and ban on iron ore mining in Karnataka and Goa have affected the demand for trucks. Freight rates have also taken a beating affecting business sentiment among fleet operators.
 
The situation would have been even worse if it were not for light commercial vehicles - which are still in demand. This segment saw a growth of 16 per cent in 2012/13 and in a way saved the day for the two major players, Ashok Leyland and Tata Motors.  The LCV goods segment grew from 411,415 units in 2011/12 to 476,734 units in 2012/13. Ashok Leyland, which launched its LCV product Dost a couple of years ago, sold 34,794 units in 2012/13 compared to 7,593 units in 2011/12. Tata Motors further increased its share in the segment by selling 280,911 units in 2012/13 as against 245,188 units in the previous fiscal year. Experts have said that the continuing re-structuring of the road transport sector has fuelled large scale demand for light commercial vehicles which are used to ferry goods within the city. The M&HCV vehicles are primarily used for inter-state transport.
 
Commercial vehicles sales have always been cyclical and the industry has learnt how to cope up with it. The growing demand in the LCV segment has offered the industry a breather. Manufacturers are hoping that various measures taken by the government of India and the Reserve Bank of India to boost the economy start taking effect soon.

Ultimately, the demand for LCVs is inextricably linked to sale of M&HCVs. The thumb rule is 10 LCVs are needed for one heavy commercial vehicle sold. If the freefall in the M&HCV segment continues unabated this year as well, the LCV segment may well slip into a recession too, they fear.