What is happening now is the downward cycle4 min read . Updated: 14 Oct 2008, 12:50 AM IST
What is happening now is the downward cycle
What is happening now is the downward cycle
Mumbai: The Indian commercial vehicle industry is going through a rough phase as it struggles with high interest rates and low buyer sentiment. The medium and heavy commercial vehicle (CV) segment posted a year-on-year decline of 1.57% between April and September. P.M. Telang, executive director of commercial vehicles at Tata Motors Ltd, the largest CV maker in India with a 67.8% market share, remains optimistic, saying the current slowdown in sales is just a passing phase. In an interview, Telang touched on the structural demand shift in the industry, and the importance of the light commercial vehicle segment—which includes the Ace family of vehicles—for the company. Edited excerpts:
An additional capacity of close to 600,000 will be added to the Indian commercial vehicle industry in the next two years. Do you think the market has an appetite for such volumes, considering the present economic scenario?
It’s known the world over that the commercial vehicle industry is cyclical in nature. It swings out of sync with respect to the economic upturns and downturns.
Liquidity in the market has come down very dramatically as the government is trying to control inflation, interest rates have gone up substantially and banks are pulling out liquidity from the market. The cost of commodities—steel, rubber and petroleum-based products—is also rising rapidly.
Only now is one beginning to see some changes. Petroleum prices have come down too. But we will have to wait and watch. Even steel prices in the international market have shown signs of softening. However, we have yet to see the impact in the Indian market.
When do you see the benefits of metal prices, which have started softening of late, on your balance sheet?
It’s too early to speculate that as we do not get the full benefits of the international prices of steel coming down, as the rupee is weaker compared with the dollar and hence if we import, costs are higher. However, we are hopeful that things will improve and move in the right direction. In the meantime, we have taken a few price hikes—3% on 1 April, 3% on 1 August and around 2% in October. This is quite unprecedented in our history that we had to take so many price hikes to make corrections. Hopefully this should reflect well.
With transporters already reeling under high operating costs, won’t it deter them from new vehicle purchases, thus impacting your volumes?
As there is an economic growth in the country, it will result in demand for movement of goods and people. However, some of the steps taken earlier in terms of overloading constraints are relaxed now. Probably this is sucking some potential demand from the marketplace every month. These things do happen during turmoil but we do expect things to improve.
The Golden Quadrilateral project seems to be progressing quite satisfactorily. The bottlenecks in the projects are in various stages of being removed. Once that happens, there will be a structural shift in the entire system and will see more and more transport on the roads.
This will have a tremendous impact on the economy as villages, smaller and bigger cities will integrate. We believe that Pradhan Mantri Gramin Sadak Vikas Yojana, which aims at offering last-mile connectivity to villages and towns, is a step in the right direction and will help Tata Motors quite a lot as we have the last mile vehicles Ace and Nano.
Why has the light commercial vehicle assumed such significance for manufacturers, and Tata Motors in particular?
When the economy was developing (including that of China and Brazil), the mid-size vehicles were all-pervasive and specialized in offering door-to-door, city-to-city services. But as the economy starts growing, different kinds of transport mechanisms come into play—smaller vehicles will do the last-mile job and cargo will get consolidated at one place and vehicles with high capacity will transport bulk cargo. In such cases, the demand pattern of the vehicles also changes.
Then you find vehicles of the higher set—tractor-trailers, multi-axle vehicles—and of the lower set—light commercial vehicles and small commercial vehicles. Small commercial vehicles are connected with a developing country where you have narrower roads and smaller cargo and there is a need of higher manoeuvrability. Hence smaller vehicles have become so popular over the years.
How will the smaller (half tonne) variant, Penguin, fit into the Ace family of vehicles?
We are not talking about it. Tata Motors always looks for an opportunity to enter a segment in the market where there is an insatiated demand and offer an appropriate product. All of it hence is a part of a very elaborate strategy.
The entire idea behind developing the Ace was to address the demand that was being met by the three-wheelers, which do not measure up to the safety and emission standards. We probably would also do something for three-wheeler commuters by offering a vehicle that is safer and cleaner.
Magic, as a matter of fact, has been able to address that to a great extent. What message you see through the Nano, you will see it through the Ace. While Nano will meet the individual customer’s requirement, Ace would meet requirements for ferrying passenger and goods in the lowest segment.