Tata Motors will be correcting prices of its medium and heavy commercial vehicles (MHCV) range once the BS-VI (Bharat Stage) norms take effect, said a top company executive.
According to Girish Wagh, president of the commercial vehicles business, the truck market leader has taken the transition to stricter emission norms as an opportunity.
It will revisit the entire value chain, optimise costs and launch models that are likely to set new benchmarks in the industry. “As the market leader, we will correct the (price) structure to a great extent. This is the time to do it,” said Wagh. “Nobody in the ecosystem is happy with the kind of discounts that are there,” he said, adding that the company has pulled back on discounts quarter on quarter.
Analysts, however, expect discounts to remain high even after April. One cannot take such high moral ground under the current circumstances,” said SP Singh, adding that ground reality is very different.
Discounts have been consistently high and is likely to remain so. The first quarter will be a very slow one for sales, he added.
Bharat Giani, an analyst at Sharekhan, agreed. “The drop in demand has been in double digits and companies will want to gain market share at any cost. BS-VI will see a cost increase of 10-11 per cent for manufacturers. Given the weak demand, they will not be able to pass it on to buyers. This will mount pressure on margins. “I don’t see any respite in the near term,” he said.
“Even during the upcycle, discounts went on increasing. While cost savings will help, I don’t see discounts cooling off,” added Giani.
In a post earnings call with investors on Monday, Ashok Leyland’s management said discounting in the market is at an all-time. It has gone up from the average Rs 5 lakh to Rs 5.25 lakh.
A slowing economy and lower consumption, coupled with regulatory changes, have dragged MHCV sales into the slow lane and forced manufacturers to resort to deep discounting — high as 15-20 per cent of the cost of the vehicle.
The switchover to BS-I has only exacerbated the discounting trend. Sales of such vehicles have been skidding for a year and half. It declined 9.81 per cent in February to 30,831 units, according to the Society of Indian Automobile Manufacturers (Siam). In the first 10 month of the current fiscal year, it has fallen by 41 per cent.
Since the beginning of the slowdown in June, Tata Motors has been engaging a lot more with the customers. It tried to understand their “pain points” and incorporated some of the inputs into the BS-VI range, said Wagh.
“We have transformed the entire range. The process started when making a transition to BS-VI,” he added. As a result, the company already walked half the distance in terms of technology absorption of the new emission norms.
Having learnt lessons in a hard way during the earlier changeover of the emission norms, Tata Motors had planned the winding down of BS-IV and ramp up of BS-VI carefully, he added. Wagh however, conceded that pre-buying has been quite muted with only large and medium fleet operators buying BS-IV ahead of the new norms.
Wagh expects volumes to get back on the growth trajectory for the industry from the third quarter of next fiscal year. He cautioned of low margins. “It’s a peculiar situation. The margins will fall for some time because of cost increases,” he said.