The automobile industry recorded zero sales in April 2020. To boost consumer sentiment, the Centre should reduce GST and come out with an incentive-based scrappage policy, says Satyakam Arya, MD & CEO, Daimler India Commercial Vehicles Pvt. Ltd. Excerpts from an interview:
What has been the impact of COVID-19 on the commercial vehicle (CV) segment?
The CV industry has been going through a tough phase since April 2019 owing to declining sales. This is because of the economic slowdown in India, the impact of revised axle load norms and GST which increased trucking efficiency, and the NBFC crisis that led to a funding crunch.
The expected spike in BS-IV vehicles pre-buying in Q1 2020 did not manifest. Increasing taxes on diesel will further add to the woes of the fleet owners because about 50% of the total cost of operation is fuel. Due to high availability and low demand, most operators will not be able to pass this increase on to their customers. Although demand from some segments such as agriculture and e-commerce is likely to rebound quickly, demand from India’s core industries will take longer.
In this already difficult time, the COVID-19 outbreak and the resultant lockdown has brought the CV industry to a grinding halt. Post-lockdown, we expect business and consumer sentiment to remain poor in India, leading to a sluggish demand in the coming months.
However, the easing of lockdown for economic activities has created some positive sentiment amongst industry players. We began restarting our plant operations and our dealerships on May 7.
Although the market sentiment is poor and the road ahead is steep, DICV is in a relatively strong position.
Post COVID-19, what are DICV’s plans to overcome the crisis?
Our number one priority is ensuring the health and welfare of our employees and other stakeholders to make it through the crisis.
To this end, we have initiated hundreds of health, safety and sanitisation measures. We are in constant contact with our supply chain and our dealer network to make sure that our ramp up is as quick and smooth as possible. This level of integration with our stakeholders will help us react in an agile manner so that we can come out of this crisis even stronger than before.
How long will the CV segment take to recover?
The current situation is highly fluid and volatile. A lot depends on how long the COVID-19 situation persists and on the government’s fiscal response.
The industry will witness a massive, never-before-seen drop in volumes, possibly going back to volume levels not seen since 2009 or maybe even worse. Capacity utilisations across the OEMs could suffer greatly (in the range of 25-30%), making them financially weaker.
In the current situation, we expect that the Indian economy will return to its growth trajectory from 2022. MHCV segment will rebound in line with that. If the government introduces measures such as scrappage policy, reduces taxes or gives a big boost to infrastructure spending, the recovery could be faster.
Is there any change in your capital expenditure (capex) or sales target for 2020?
April 2020 was the first month in history that the Indian automobile industry recorded zero sales. While we do not share our sales targets for competitive reasons, it is clear that the total industry volume will have to be adjusted because of the pandemic.
For DICV, we are being cautious with our spending but we will not do anything that will hurt us in the long term. All our capex decisions are based on our determination to succeed in the long term.
What are the product segment shift that you are looking atahead in FY21?
We still need to wait to see the depth and the longevity of the Covid-19 crisis. In many ways, this crisis is pushing us more towards modernisation. This will also be seen in the trucking industry. Indian drivers, for the longest times, have worked in unsafe conditions. Now, ‘safety’ will be a priority and will influence the buying decisions of customers. DICV has raised the bar of expectation for the Indian customer by providing safer, modernised trucks.
We will continue to have an increased focus on digitisation for our customers. With the new generation of BharatBenz trucks, we are looking to move away from the traditional tonnage classification. Instead, we will focus on creating ‘the best truck for every need,’ customising vehicles for user applications and targeting specific sectors such as e-commerce.
Your comments on fast track implementation of scrappage policy in India?
There are approximately 28 million vehicles that are over 10-years old running on Indian roads, causing an excess of pollution. India has never had a scrappage policy, so we want the government to come out with a strong policy for long-term goals instead of making it a one-time affair.
Authorised Vehicle Scrappage Facilities (AVSF) must be set up professionally based on the principles of reuse and recycle with proper procedures established to handle hazardous materials and their disposaldisposition. These centres should also have secure IT systems to issue scrap certificate and cancellation of registration of the vehicle linked to other government IT infrastructure.
Further creation of mechanism for trade ability of scrap certificate is an important criteria to create fresh demand. Many of the older vehicles are traded two2 or 3 three times and these owners may not be willing to scrap without incentivisation and are not looking to buy a new one as a replacement. The savings in crude oil import due to putting more and more fuel efficient vehicles on the road could be used as incentivisation for scrappage.
What steps can be take to boost consumer sentiment?
The reduction of GST from 28% to 18% and implementation of an incentive-based scrappage policy. We all know that CVs are the backbone of the economy. CVs are not luxury items and therefore, GST rationalisation is the need of the hour. The Tamil Nadu Government can look at reducing the road tax and temporary registration charges by at least 50% for new vehicles for the next one year. It will also help to generate fresh demand and reduce the cost burden on companies.