Information obtained from industry heads and large commercial vehicle dealers reveals that medium and heavy commercial vehicle (MHCV) sales have plunged in July from a year earlier across India even as inventory levels touch 60 days and beyond in the some regions, as opposed to the norm of two-three weeks.
Truck sales, a leading indicator of economic growth, are the worst-hit across automotive categories. Discounts go up to ₹8 lakh on a 40-49 tonne truck as the two largest commercial vehicle (CV) manufacturers, Tata Motors and Ashok Leyland, slug it out amid shrinking sales.
Meanwhile, smaller rivals such as Volvo Eicher Commercial Vehicles Ltd and Daimler India Commercial Vehicles Pvt. Ltd claim that heavy discounting by the two leading truck makers has impacted their retail sales as well.
These discounts are fixed by the truck makers based on the region-specific freight movements and demand-supply of carrying capacity, six large CV dealers, who dominate their respective home states told Mint. The discount rates vary by region, customer order size, availability of finance and the level of unsold inventory.
Dealers acquire vehicles from the manufacturers only after making complete payment via financing. The dealers who spoke to Mint preferred not to be named as discounting is largely subjective and customer-centric.
Rajasthan, one of the most price-sensitive markets in India, has reported a more than 50% drop in MHCV sales in the past few months.
“Rajasthan is a high tonnage market with more demand for 40-49 tonne trucks. However, currently the freight movements of steel, cement, building materials and other goods are down, hitting trucks and tractor-trailers the most," a Jaipur-based truck dealer said, stressing that all manufacturers are now resorting to discounts.
A 49-tonne Ashok Leyland truck with a price tag of ₹32 lakh is on offer for ₹25.5 lakh by another dealer, who operates several showrooms of Ashok Leyland in Rajasthan. “Until three months ago, the same truck was retailed for ₹27 lakh. I lost one of my oldest customers, who is a large fleet operator, to Tata Motors as they were offering a better discount on a similar product," said this dealer principal.
“The discounts are based on what the competition is offering. These are approved by the manufacturers and, in turn, based on the sale price, the purchase price of the dealer is calculated. The manufacturers decide the final discounted prices. The dealer principals can at most work on better margins from them. However, the margins for Ashok Leyland dealers are squeezed by 40%," the dealer added.
Another large CV dealer, who operates multiple dealership outlets and workshops for Tata Motors across Kerala, said: “MHCV retails have dropped by 40-50% and stock inventory is good for up to 60 days. We have a flood-like situation again this year and the market does not look good for another two months. The bookings in the first two weeks of August this year are down 50%." Typically, truck inventory should not be for more than two weeks as dealers pay hefty interests on loans raised for acquiring stock. He suggested that while discounting averaged 10% on retail prices earlier, it has now increased to 15-20% or, up to ₹8 lakh, on MHCVs in Kerala.
Another Kerala-based Tata Motors CV dealer, who sells about 800 units every month, said an upfront discount of ₹5 lakh is available on a 49-tonne truck, including the Signa 4923.S tractor cab ( ₹35 lakh) and 4923 Signa 16-wheeler truck ( ₹40.52 lakh).
Tata Motors and Ashok Leyland did not respond to emailed queries sent last week. Addressing an investor query on 3 August, Gopal Mahadevan, chief financial officer and whole-time director of Ashok Leyland Ltd, said, “It is not that we will let a large customer just walk away because of price."
“The HCV segment sits on a record inventory of around 60 days currently. The average discounts fall in the range of ₹3.5-4.5 lakh per vehicle across the truck segment," said Mitul Shah, an analyst at Reliance Securities. “There is high probability of more discounting to continue in MHCVs, given that challenging economic conditions persist."
“The heavy discounts seen have not left us unaffected," said Rajaram Krishnamurthy, vice president of domestic sales, product management and network at Daimler India Commercial Vehicles.
Vinod Aggarwal, managing director and CEO of Volvo Eicher Commercial Vehicles, recently said the CV discounting trend had impacted his company’s sales. Tata Motors, Ashok Leyland and Daimler India paused production for several days in the past.