If the demand pattern in the past five months is any indication, the troubled heavy truck segment might be coming out of the woods. India’s leading manufacturers of trucks and buses, such as Tata Motors, Ashok Leyland and Eicher, have reported substantial jump in volumes during this period.

Sales of medium and heavy commercial vehicles (trucks and buses) have grown nine per cent to 90,069 units in the past five months compared to 82,622 units in the same period last year, according to data supplied by the Society of Indian Automobile Manufacturers.

Better still are the sales of trucks in this segment that collectively reported a 15 per cent growth during the same period at 75,790 units. This is the first time the segment marked a growth, breaking away from the continuous downward trend, which started in April 2012.

According to a Tata Motors executive, big fleet owners who had decided to sweat their vehicle assets longer than usual have started replacing old trucks. Excise duty cuts, stable freight rates, a stable government at the Centre, new bus orders and relaxation of lending norms by banks have helped push retail sales.

Ravindra Pisharody, executive director at Tata Motors, said, “When the market drops 25-30 per cent, it means fleet buyers have stopped replacing their vehicles. (But) with lower excise duty, a new stable government at the Centre and all the announcements (made by the government), the sentiments have definitely changed. This is for the first time in 9-10 quarters that we are seeing improvement in demand.”

Tata Motors is India’s largest truck producer, with a domestic share of 55 per cent. The firm’s medium and heavy commercial vehicle sales marked a 30 per cent growth last month compared to the year-ago period.

In earlier months, falling demand as a result of near-complete withdrawal of smaller players (having five trucks or less) from the market forced companies to resort to plant shutdowns to avoid piling of inventory and costs at the dealer end.

As a result, discounts shot up and hit an all-time high, with some offering as high as 40 per cent of the value of the truck. According to Pisharody, discounts are still at unreasonably high but are stable. Tata Motors is working on ways to bring down the negative effect of discounts on its margins.

Mahindra & Mahindra, which entered the heavy-truck segment a few years ago, has also witnessed a positive movement in demand over the past few months.
Pawan Goenka, executive director at Mahindra & Mahindra, said: “We had a very good growth of 68 per cent in truck sales during the last quarter and we hope the momentum is sustained. Though the growth was on a small base, it is a good sign of a turnaround.”

Fleet operators are appearing more confident on their rates, especially after the reduction in diesel even though a reduction of three or four per cent in freight rates was expected on popular routes. Diesel price cut was made after a gap of four years.

According to the Indian Foundation of Transport Research and Training, kharif crop procurement of paddy, cotton, pulses, oil seeds and other cereal items in various states has led to continuous demand for truck fleet, enabling truck rentals to remain firm during October 2014 despite quantum fall in diesel price.

Rs While Tata Motors says its capacity utilisation at its manufacturing plants has improved, its factories still remain largely under-utilised. Manufacturers are quick to point out that although growth is happening, it is on a small base and importantly the economic improvement based on new investment and tonnage growth is yet to happen for the demand to sustain the upward pattern.

Erich Nesselhauf, CEO and managing director at Daimler India Commercial Vehicles, said: “Last month or so, we have seen demand coming back to the market but it is still far below where it should be. But compared to the previous months, it was a growth of 30 per cent but on a low base. Not much has changed on the ground, though, except for reduction in fuel price.”