There seems to be no light on the horizon for the sustained weak phase in the Indian truck market as it registered negative growth once again for January 2013. With supply of new trucks flooding an already saturated market, there is little sign of demand picking up.
With the slow economy affecting most sectors, the fall in demand for freight transportation has hit the trucking industry hard. Fleet owners are able to meet the current demand with the existing inventory leaving no scope for upgrading or replacement of their trucks. Mining trucks and tippers have suffered a drop in demand as mines across the country face closures for various reasons.
In general, truck owners tend to replace older, worn out models after approximately four years of use. However, high interest rates on loans are making truck owners shy away from purchasing new trucks despite lucrative offers and discounts offered on new models by truck manufacturers and dealers. The few that do want to buy new trucks are saddled with their old ones as the resale value of trucks went down by 30% in the last few months.
The downturn in the trucking sector has hit almost all commercial vehicle manufacturers, big and small. Tata Motors registered severe losses to the tune of 52% in its sales of heavy and medium commercial vehicles. Ashok Leyland, another big brand in commercial vehicle manufacturing suffered losses of 25% in sales in a month. A new entrant to the sector, Mahindra and Mahindra was not spared either as it witnessed a 34% dip in its sales.
Most of these companies are resorting to bringing down production numbers to avoid a back up of new trucks at dealer sites and to cut production costs. However, this is far from the ideal solution to the problems that the trucking industry is currently facing. There is a pressing need to incorporate measures to increase sales in the trucking sector.
Firstly, the cost of borrowing money needs to be reviewed in order to encourage sales in addition to creating a new loan structure to keep the installment costs low. Although lower interest rates or installments may provide some relief, it is not enough. The basic problem of a low freight demand across the country needs to be addressed before truck sales can be expected to pick up.
Freight rates have remained almost unchanged making it harder for truck owners to maintain profitability. The rising cost of fuel eats into the profit margins of fleet owners who have no choice but to enter into competition. Purchasing new trucks therefore takes a backseat in terms of business priorities.
The combination of a slow economy, high interest and lending rates and low demand for freight transportation has dealt a hard blow to the trucking sector. Unless strong corrective action to curb inflation and boost the country’s economy is taken by the government, the situation for most sectors including the trucking sector is unlikely to improve anytime soon.