Is it too early to celebrate the jump in truck sales and rentals?

Truck rentals moved up sharply by 11-12% in September. According to the Indian Foundation for Transport Research and Training, the double-digit surge in just a month was the first in five years. What’s more, this comes along with another surprise—stellar 27% growth in September sales of medium and heavy commercial vehicles (M&HCV) from a year ago.

add_main_imageThe moot question is: will the growth momentum in rentals and sales be sustained?

Analysts concede that rentals will moderate in the coming months especially because several one-off factors coincided last month to push up rentals. One, the 6% rise in diesel price since April was steep, but slackening economic activity had made it hard to pass on costs. Two, higher demand for goods and therefore the need for transport with the onset of the festival season gave a window for transporters to pass on costs to consumers. Three, a gradual shift to higher tonnage trucks, for which rentals could be higher.mobAds

While all the above factors pushed up rentals, the flip side is that they may recede as the festive season demand for goods wears off in a couple of months.

However, there is an optimistic lot of analysts and industry leaders who believe that the wheel of economic activity is slowly but surely moving. Activity in construction, infrastructure and mining, which will boost demand for trucks, will also support rentals, especially for larger haulage trucks.

Meanwhile, it is known that rentals influence demand for trucks. But this time round, other factors too drove up September commercial vehicle (CV) sales. Most commercial vehicle manufacturers were unprepared with BS-IV vehicle stocks and hence sales temporarily dipped. Recall that June quarter sales were down 30% year-on-year.NextMAds

Recovery in the last two months has minimized the FY2018 year-till-date decline to 6%. Manufacturers are now stocking up BS-IV vehicles at the dealer end, which is giving a fillip to sales.

Meanwhile, there are discounts in the marketplace to push sales of new trucks that are costlier too. Another reason for the heady sales jump is the low base—medium and heavy commercial vehicle sales rose 20% year-on-year in the September quarter after sales had contracted by 14% in the year-ago period.

So, will truck sales continue to skyrocket in the coming months? Currently, views are divided. According to Edelweiss Research, stricter enforcement of overloading of trucks and ban on polluting vehicles will see replacement demand gain traction. But the focus could shift from higher sales volume to higher tonnage. thirdMAds

A contrarian view is that once pent-up demand that had slackened due to series of regulatory uncertainties subsides, growth rates will peter off. In a presentation, the Society for Indian Automobile Manufacturers points out that rising vehicle prices could elongate replacement cycles for heavy trucks. Also, freight demand is expected to remain weak in the second half of FY2018, which will drag utilization of trucks and impact sales.