As the automotive sector in India experiences a steep fall in sales due to the slowing economy and floods in some states, sales of trucks are among the worst hit.
With mounting stocks of unsold inventory, truck manufacturers are now offering heavy discounts to push sales. In July truck sales plunged across the country. Inventory levels touched 60 days and beyond in some regions, as opposed to the norm of two-to-three weeks, reports Mint newspaper.
In July this year, sales of medium and heavy commercial vehicles fell 37% compared with July 2018, to 17,722 units, while light commercial vehicles posted a 19% decline to 39,144 units. Total sales of commercial vehicles fell 26% to 56,866 units.
The country’s two largest commercial vehicle makers, Ashok Leyland and Tata Motors, reportedly offered discounts of up to 800,000 rupees (US$11,224) on a 40-49-ton truck. This discounting has also affected the sales of smaller players such as Volvo Eicher Commercial Vehicles Ltd and Daimler India Commercial Vehicles Pvt Ltd.
The truck fleet owners were heavily dependent on shadow bankers like IL&FS and others to finance their vehicle purchases as those offer easier lending terms than commercial banks. However, the shadow banking crisis triggered by the IL&FS crash last year has led to a severe liquidity crunch, forcing shadow bankers to drastically cut their loan disbursals and tighten lending norms.
In addition, with the Indian economy facing a downturn, overall demand for freight transport has also fallen. Hence truck fleet owners are either deferring the purchase of new vehicles or going for used ones to rein in costs. There have also been increased defaults by those who had bought new trucks.
This slump in demand is forcing manufacturers to offer discounts. This has also led to a margin squeeze for the dealers, which in some cases is as high as 40%.
Dealers acquire vehicles from the manufacturers only after making complete payment via financing. Hence if the truck inventory remains unsold for longer periods they end up paying hefty interest on loans raised for acquiring the stock.
One of the major clients for the truck fleet operators is the real estate sector, which is also facing the heat of economic slowdown. According to a survey by consultancy Knight Frank, the real estate stakeholders have downgraded the outlook for the ongoing six months to “pessimistic” in the Real Estate Sentiment Index Q2 2019.
In a note, Knight Frank observed that “the overall slowdown in the economy, coupled with factors like the NBFC crisis, developer defaults, and bankruptcies, have slackened the sentiments of the sector, especially for the residential segment.” Lower demand from agriculture and other sectors also contributed to the weak market as fleet owners witnessed a drop in rentals.
The passenger vehicle industry also suffered its worst sales performance in nearly 19 years in July. According to the Society of Indian Automobile Manufacturers, it was the worst sales performance since December 2000. It was also the ninth straight drop in monthly passenger vehicle sales.