Lack of financing, low demand from small transporters impacting recovery in truck sales: Tata Motors’ Girish Wagh
About 569,000 CVs were sold in FY21, fewer than that in FY11 and almost half of the peak sales of over a million units in FY19.
Vehicle financers have been cautious in funding small transporters, who typically own fewer than 10 vehicles, given the sharp increase in their delinquencies over the past few months, according to Girish Wagh, head of the commercial vehicles business unit at Tata Motors. Availability of financing becomes critical for a sector where 95% of the sales are financed by debt.
Smaller transporters themselves too have been risk-averse after their experience during the Covid-19 pandemic, he said.
CV makers across the board said at the end of the April-June quarter this year that a sales recovery was imminent. However, at 166,000 units, sales during the June-September quarter failed to exceed FY20 levels and were a third less than the peak levels of FY19.
Wagh attributed this to a delayed monsoon and lower profitability of transporters. A delayed monsoon meant that mining activity resumed later than the norm, pushing back the sales for new CVs. Meanwhile, lower profitability of transporters meant that they avoided fleet expansion or replacement of their older vehicles.
However, the country’s largest CV maker feels that the conditions were improving with better freight demand from sectors such as e-commerce, infrastructure development, mining, cement, steel and agriculture, among others.
Freight rates in October were higher by about 7% on average compared to August, improving the profitability of transporters even after adjusting for higher fuel prices, as per a recent Crisil report. The sector was still not out of the woods, but with improving economic activity there will be a recovery in the short term, experts said.
But demand recovery for passenger transport vehicles was still a worry. Sales of buses have plummeted during the pandemic as educational institutes and offices remain closed.
Soaring diesel prices meant that customers were also staying away from the medium and heavy commercial vehicles market (MHCV), Wagh said. An increasing number of customers were preferring CNG in the segments where the option is available, he said.
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