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Truck and bus sales may hit air pocket

The robust uptick in the sales of heavy trucks and buses since October last year could be attributed to more than only a fundamental pick up demand.

Fleet operators, who have been replacing their ageing fleets, are in fact advancing their purchase to avoid paying a significant mark-up in price expected to be slapped from October.

Prices are expected to move upwards of Rs 80,000 (or five per cent) on account of an anti-skid technology, called anti-lock braking system (ABS), to be imposed mandatorily in all medium and heavy commercial vehicles (MHCV) as per directives of the ministry of road transport and highways.

Sales of MHCVs (good carriers) shot up 25 per cent in the second half of last financial year at a time when economic activity within the country is yet to gather substantial pace that could justify the commercial vehicle demand. Sales in the April-July period was also up 25 per cent despite the fact that discounts are running high.

Pawan Goenka, executive director, Mahindra & Mahindra, said, “The heavy commercial vehicles have had very good growth, continuous for 11 months in a row at 20 per cent plus growth every month. But discounting continues to be high in the industry.”

It is, thus, unusual for truck and bus sales to be up at a time when discounts are also hitting an all-time high. Some manufacturers are offering as much as 25 per cent discount on the final value of the vehicles, especially for bulk buyers who had been postponing their purchase for about two years.

The law on mandatory use of ABS technology was enforced on all manufacturers on April 1. However, they are free to sell vehicles without ABS till September 30. From October 1, every truck having a gross vehicle weight over 12 tonnes and every bus above five tonnes will be required to sport ABS.  

ABS comes in handy where vehicles are prone to skidding or the wheel is likely to lock.

It is an emergency braking system that prevents wheels from locking, resulting in effective braking and greater safety.

Commercial vehicle demand is, thus, expected to come under duress in the second half of this year as several buyers will be forced to prepone their purchases to avoid the hike. Growth for the MHCV segment is expected to climb down and close between 13 per cent and 17 per cent for the year, against 25 per cent now.

Sudarshan Shreenivas, associate director, India Ratings and Research said, “If you look at the IIP data, there is nothing to suggest that the sales increase in the heavy commercial vehicles segment was because of a perceived pickup in the economy. Discounts remain high and there is the risk of paying more on account of the ABS technology, which will become mandatory.”

Tata Motors, the commercial vehicle market leader, witnessed a growth of 20 per cent in the April-July period, when its average capacity utilisation across its plants went up to over 50 per cent, against 30 per cent early last year. Chennai-based Ashok Leyland, too, recorded a robust growth of 50 per cent during the same period.

However, commercial vehicle manufacturers are optimistically looking forward to better months, with new contracts awarded for construction of highways and new mining leases.

A Tata Motors spokesperson said while some of the demand for the new CVs had been driven by a move to make ABS mandatory, the overall demand for M&HCVs (trucks) is likely to register a growth of 10-15 per cent in FY16, driven by a continuing trend towards replacement of ageing fleet, with demand expected to further pick-up based on reforms being initiated by the government in the infrastructure and industrial sectors.

“While there will be a price hike, the extent of which we are working on with our partners, regulators and government authorities, the impact through adoption of these technologies will be far greater, as compared to the additional cost levied, towards ensuring a safer trucking environment,” the spokesperson said.