Mumbai: Hopes of an early revival in demand for new trucks in a limping economy have hit a hurdle with the easy availability of vehicles that were repossessed from truck owners over loan defaults.
Local sales of commercial vehicles, mainly trucks and buses, have risen to 41,881 units in March from a low of 17,920 in December, lending some cheer to the stressed operations at India’s big truck firms. But an estimated stock of up to 45,000 trucks repossessed in fiscal 2009—double from the year before—is beginning to eat into fresh demand for such vehicles.
In addition, with some signs of a recovery and better cash flows, some truck owners, who defaulted on loan repayments and lost their vehicles to financiers, are now reclaiming their repossessed vehicles.
Precise data on to what extent these vehicles are affecting new sales is not available. On average, India sells 30,000-40,000 new trucks and buses per month. About one in three of such vehicles sold are what are called heavy commercial vehicles.
R. Sridhar, managing director, Shriram Transport Finance Co. Ltd, estimates there are now close to 20,000 repossessed heavy vehicles for sale in the industry, especially trucks and tippers, driven by financiers’ need to liquidate these assets, as well as to free up space for repossessed vehicles. Heavy vehicles are those with a gross weight of at least 16 tonnes.
According to New Delhi-based Indian Foundation of Transport Research and Training, between 40,000 and 45,000 heavy vehicles have been repossessed by auto finance companies in fiscal 2009, about 28,000 in the December quarter alone. The repossessions in the fiscal gone by were significantly higher than the 20,000-25,000 units seized or returned to financiers in fiscal 2008, says the foundation.
Demand for such heavy vehicles, measured by new units sold by auto makers such as Tata Motors Ltd and Ashok Leyland Ltd, has contracted one-third to 183,541 units in fiscal 2009 from 274,582 units a year ago, according to industry body Society of Indian Auto Manufacturers.
Such vehicles are typically used for hauling commodities such as cement, iron and steel on key long-haul routes, as well as in mining activities. Movement of such commodities, which are largely used in manufacturing and construction, has slowed with crimping demand from these segments tracking the economic slowdown and a tighter financial environment.
The overall drop in manufacturing—factory output is growing at its lowest in 16 years—is being reflected in the lower capacity utilization of goods carried on trucks, according to one analyst.
From October to February, the capacity utilization of trucks (for goods) declined 25%, and continues to be lower than last year’s level despite a small recovery since February, said Manoj Mohta, head of research at Crisil Ltd, in turn affecting transporter profitability.
Given that loads are already low, if a truck operator finds a slightly older vehicle at a competitive price, he will choose that over a new one, said Rajive Saharia, executive director of marketing at Chennai-headquartered Ashok Leyland.
Shriram Transport’s Sridhar said the prices of such repossessed vehicles, particularly those that are less than a year old, have led to “a drop in prices by as much as 20%, since capital investment in such vehicles is lower than (in) the newer ones”.
Other smaller truck financiers such as Sudhir Khanna, executive vice-president, commercial vehicles, at Kotak Mahindra Bank Ltd, concurred with the trend, though one financier, Shyam Mani, managing director, Tata Motorfinance, was of the view that there was no impact on new sales from the repossessed stock in the business.
In a 6 May conference call with the analysts, Siddhartha Lal, managing director and chief executive officer at Eicher Motors Ltd, complained of an oversupply of trucks partly owing to the supplies of cheaper trucks coming in from repossessed stocks. The highest demand, however, say auto makers, is for used or second-hand tractor trailers and tippers (vehicles with gross weight of 30-49 tonnes).
Crisil’s Mohta said the sudden sales of repossessed vehicles has also been triggered by the need of the bankers to set their portfolios right. “In the initial phase of the downturn, many of them were in denial mode and did not agree to a lower price, but now that the reality has hit them, they feel its better to sell them (surrendered assets) rather than being hit in the longer run,” he said.