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Vehicle sales and the pickup in economic activity

Vehicle sales and the pickup in economic activity
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First Published: Mon, May 11 2009. 11 29 PM IST

Updated: Mon, May 11 2009. 11 29 PM IST
Commercial vehicle sales have typically been an important indicator of economic activity. So, it seems like a conundrum that amid all the signs of a pickup in economic activity, truck sales have continued to fall by at least 40% year-on-year.
In April, sales of medium and heavy commercial vehicles fell by about 42%. On the other hand, rail freight loading grew by 3.4% in April, after several months of negative growth. What gives?
A fund manager at a domestic mutual fund explains that it doesn’t always make sense to compare growth in commercial vehicle sales with growth in economic activity. The right way to look at it, he says, is that the sales reported by commercial vehicle makers are but additions to an already existing large fleet of trucks. It’s the rate of addition that’s falling and not the size of the truck population.
For instance, in the first four months of 2009, about 46,000 medium and heavy commercial vehicles were sold by Tata Motors Ltd and Ashok Leyland Ltd, less than half of the sales in the same period a year ago. The fund manager says that very few trucks are taken off the roads, which means that most of the truck sales result in additions to the existing fleet. For perspective, the total truck population is estimated to be around two million by an analyst at a domestic brokerage firm.
With the fleet growing, the capacity for carrying cargo has also grown, which means that higher economic activity can be supported.
Needless to say, when manufacturing activity picks up further steam, the rate of addition to the truck population will be higher. If, as predicted by many experts, growth picks up in the second half of this year, commercial vehicle sales, too, should start looking up.
But the fact that sales are now falling sharply doesn’t contradict other indications that things are looking up in the economy.
Write to us at marktomarket@livemint.com
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First Published: Mon, May 11 2009. 11 29 PM IST