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The recession sign on the commercial vehicle track is to continue for a while, courtesy a crawling economy, costlier-than-ever diesel, and an aggressive Railways. By Ranju Sarkar
Says R. Seshasayee, CEO, Ashok Leyland (Leyland): ''The sentiment has been affected. When an operator buys a truck, he's making an investment on capital goods on wheels. It's a call on the future---on whether his future earnings will be enough to pay off the debt.'' While hike in diesel prices---diesel accounts for 57 per cent of the operating cost of a truck---has increased an operator's costs by 20 per cent, the slowdown and a 10-per cent loss in freight traffic to Railways have squeezed transport operators further. Explains Ravi Kant, Executive Director (Commercial Vehicles Business Unit), Telco: ''The small operator, who's either attached to a big operator or a broker has been squeezed from both sides'' If the slowdown in the economy affected sectors like cement and steel, a more efficient Railways, which did not increase freight rates, weaned away some customers. But more than anything, the oversupply of vehicles, estimated around 15-20 per cent, has affected the demand. For, despite the growth momentum in the past one-year, freight rates haven't moved up. For instance, the freight for a 9-tonne payload truck between Mumbai and Delhi is around Rs 11,000. The inability to increase freight rates has affected transport economics. It has forced operators to take a closer look at their costs, and encouraged them to shift to multi-axle vehicles, which carry more load. For instance, a 12-tonne, rigid-axle truck costs Rs 7 lakh and can carry upto 15 tonne of goods. A 22-tonne, multi-axle vehicle costs only a little more, Rs 9 lakh, but can carry almost double the load (30 tonnes). Operators can optimise their diesel costs by moving larger loads on larger vehicles. The price differential is marginal but the load-carrying capacity more than offsets the price-differential. Thus, while sales of MCVs (medium commercial vehicles, 12 tonne) have come down, sales of HCVs (heavy commercial vehicles, 22 tonne) or multi-axle vehicles are on the rise. Indeed, transport economics in India revolve around overloading. For instance, for overloading, operators use specially built lug tyres (for rear wheels) or put more leaf springs to support the rear axles. As result, a 22-tonne multi-axle vehicle can take loads upto 34 tonnes. The diesel price hike has pushed up operating costs, and the sales tax rationalisation has increased capital costs. Unable to pass on the cost hikes, the immediate response of operators, says Seshasayee, is ''to stop purchase and extend the vehicle that is due for replacement.'' So, how long is the slump likely to last? Says Ajit Kumar, Vice-President, Kotak Mahindra: ''The present slump in demand is likely to continue for the next 15 months. Next year is not going to very good. This year has been the worst; next year we will have flat sales.'' This, despite attractive financing schemes. The bottomline: There's very little companies can do except pray that Yashwant Sinha increases spending on infrastructure and comes to their rescue. |
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They're
back in reverse gear. After witnessing a 36 per cent spurt in volumes in
fiscal 99, commercial vehicles sales are on a downslide again. Thanks to a
66 per cent hike in diesel prices, a rationalisation of sales tax rates to
12 per cent (a hike of 6-8 per cent), a 7-8 per cent drop in freight
movement due to the slowdown in the economy and some aggressive marketing
by the Railways, sales of medium and heavy commercial vehicles (M&HCVs)
fell 20 per cent between April and October, 2000.