Commercial vehicle makers in the country, barring VE Commercial Vehicles Ltd (VECV), have clocked zero volumes in the domestic market during April, 2020, with the lockdown aimed at curbing the spread of Covid-19 hitting sales and production at vehicle manufacturing units. In contrast, tractor OEMs such as Mahindra & Mahindra, Escort registered domestic volumes of 4,716 units (-83% yoy) and 613 units (-88%), respectively, as dealers restarted operations from April 20 onwards.
Ashok Leyland has reported zero sales of M&HCV in the month of April as against 8,918 units, in the same month a year ago. The company's Light Commercial Vehicle (LCVs) sales was also zero as against 4,223 units, a year ago. The company's total sales for the month of April 2020 was also zero as against 13,141 units, a year ago. While the sales of M&HCV trucks in April 2019 were at 7,517 units, and bus sales at 1,401 units, the segments reported zero sales during the month of April 2020.
While Mahindra commercial vehicles reported zero sales for the month of April 2020 as agaisnt 17,321 units in the same month last year, VE Commercial Vehicles Ltd reported sales of 85 units in domestic markets and exports for the month of April 2020.
“These are truly unprecedented times, and both government and industry need to work even more closely, across the supply chain to bring the industry back on its feet. The recovery of the auto industry is vital for the revival of the overall economy. For the first time ever in the history of the automotive industry in India, we have seen a ‘zero sale’ month, in April 2020,” said Vipin Sondhi, MD & CEO, Ashok Leyland .
For the month of April, VECV’s manufacturing facilities across the country, and the entire supply chain, including the company’s dealerships across India, remained affected due to the lockdown. The company received permission from the government to restart manufacturing operations in its plant in Madhya Pradesh towards the end of April, with only 25-30 per cent of the workforce and started despatching the already manufactured vehicles.
Tractor sales saw some traction even in the middle of the crisis with agricultural activities being exempt from the lockdown. Mahindra & Mahindra Ltd.’s Farm Equipment Sector (FES), a part of the $20.7 billion Mahindra Group, reported domestic sales 4,716 units in April 2020, as against 27,495 units during April 2019. Total tractor sales (domestic + exports) during April 2020 were at 4,772 units, as against 28,552 units for the same period last year. Exports for the month stood at 56 units.
Hemant Sikka, President - Farm Equipment Sector, Mahindra & Mahindra Ltd. said that the extension of the national lockdown impacted the business, with dealers partially open for just a few days. "Going forward, several positive factors including a good Rabi output, opening of procurement centres by the government, indication of good crop prices, reservoir levels etc augur well for tractor demand," said Raghunandhan NI, analyst at Emkay Global.
Outlook
Sikka said, the rate of improvement will depend on how quickly the on-ground sales operations, including the start of NBFCs are normalized, following the relaxation of the lockdown. He said that the company had sold 56 tractors in the export market.
The rate of improvement for tractors will depend on ramp-up of on-ground sales operations and adequate finance availability. As far as tractors are concerned, 47% of dealers have resumed operations. Dealer inventory stands at over 40 days in tractors, while it is 10 days in the auto segment. Dealers have enough inventory to cover initial weeks of sales. "A few manufacturing plants have received permissions, and are expected to resume operations in May," added Raghunandhan.
As far as commercial vehicles are concerned, Vipin Sondhi, managing director & chief executive, Ashok Leyland Limited said that an incentive-based scrappage scheme for commercial vehicles older than 15 years, coupled with a rebate in goods and services tax (GST), road tax or registration charges, could help give a boost to demand.
The commercial vehicle sector, which was already struggling before the coronavirus outbreak, had now come to a grinding halt, he said. Commercial vehicles are a lifeline for any country’s economy, as they carry goods and are an integral part of public transport, he added. "It is imperative that the demand for commercial vehicles be triggered. An incentive-based scrappage scheme (for commercial vehicles older than 15 years), with incentives in the form of a rebate in GST, road tax or registration charges would help give demand a boost," he said.
Once the lockdown is eased, freight demand would start picking up. At the same time, an incentive-based scrappage policy would help customers acquire new trucks at lower prices. These new trucks, with a lower total cost of operation, would improve their operational efficiency, profitability and cash position. "Also, being BS-VI-compliant, these would be less polluting," he added.
At present, 15-20 per cent of the trucks on roads are older than 15 years. Even if these were replaced with new trucks in the next 3 to 4 years, that would generate a healthy demand for new trucks and help the commercial vehicle industry partly come out of its current slump.
The long-haul multi-axle segment of the CV industry would likely benefit more if this scrappage policy was introduced. "But, of course, it would depend on the exact modalities of the scrappage policy, including incentives," said Sondhi.
"The customer would benefit from a more efficient fleet of vehicles with an overall lower total cost of ownership. It will create an upward spiral of growth for the freight industry and the overall economy, as commercial vehicles were core to nation-building," he added.
The Society of Indian Automobile Manufacturers earlier called for a temporary GST rate cut and introduction of an incentive-based vehicle scrappage policy to revive the auto sector, battered by a prolonged slowdown and the coronavirus pandemic.
Reports quoting a Central Pollution Control Board (CPCB) study stated that about 9 million vehicles plying on Indian roads were more than 15 years old and often had 10 times more tailpipe emissions than what is allowed by the current norms.
"To start operations, industry will have to look at a structured opening of the lockdown to facilitate the supply chain. Auto OEMs are dependent on the ancillary sector. A smooth flow of the complete supply-chain is vital for the production of vehicles. The need of the hour is for the industry to colloborate with the local agencies to ensure a smooth supply chain for the OEMs to commence production," said Sondhi.