Green shoots of recovery in commercial vehicle segment

With key contributors to growth in volumes being the resurgence of rural India, last mile distribution and e-commerce, there is finally a wave of optimism in the commercial vehicle segment, opines Kaushik Narayan, CEO and Founder, Leaptrucks

Kaushik Narayan

The small commercial vehicle (SCV) segment got off to a solid start in the month of July 2020.  The major players in this segment, including Mahindra & Mahindra, Ashok Leyland and Maruti Suzuki, were all able to post a strong performance against sales in the same month last year (Tata Motors is no longer reporting segment-wise monthly sales results). These players contributed to a nominal year-on-year drop of only 13% as seen in the table below despite the challenges posed by the pandemic. We believe that the SCV segment will continue to sustain this momentum despite the challenges posed by the ongoing pandemic across the commercial vehicle industry.

The key contributors to this growth in volumes include the resurgence of rural India, last mile distribution and e-commerce. An impressive agricultural output, optimal rainfall and better prices for produce have all led to rejuvenation in rural India. We anticipate that this time around this trend will outlast the pandemic, making these gains sustainable in the long run. Last mile distribution has been a key element of distribution in urban India. We see this trend also expanding into rural India. And last but not the least, as people work from home and order home delivery, e-commerce companies continue to make significant inroads into the India retail landscape. 

Companies like Amazon, Flipkart and Big Basket have all leveraged this trend to make major inroads into the Indian consumer segment, leading to a larger sale of SCVs for last-mile delivery. The market also appears to have come to terms with the higher prices for BS VI diesel vehicles.  Price increases in the SCV segment on average were between 10-20%. We also believe that in entry level products, customers will be open to looking at petrol vehicles in place of diesel due to the lower price. This will benefit players like Maruti Suzuki which can use this opportunity to make inroads against Tata Motors’ flagship product, ‘Tata Ace’. 

We also see that customers are getting over the fear of new technology introduction. Increasing awareness and digital investments by OEMs appear to be paying off. OEMs have also been able to overcome supply challenges faced due to plant shutdowns and supplier shortages between May and June. We believe that Tata Motors will continue to play a dominant role in this segment with their Tata Ace portfolio which they have expanded significantly to include petrol, diesel and CNG BS VI range of products. Maruti Suzuki will also look to grow its footprint with the ‘Super Carry’ range.

Ashok Leyland and its ‘Dost’ platform will continue to grow their presence in this segment. We anticipate that they will also face stiff competition from Tata Motors’ new ‘Intra’ range of products. Mahindra & Mahindra will continue to be a strong performer in the pickup range. The company will face renewed competition from Tata Motors, Eicher Motors and Ashok Leyland which has delayed their introduction in this segment by a few months.

While the goods transport segment within SCVs has seen a come-back, we believe that the pandemic will have a lasting impact on the passenger segment. The transition to work from home, getting outside only for critical needs, and the preference for two-wheelers and entry level cars will all have a significant negative impact on the passenger transportation industry, which also includes the SCV category. We anticipate a long-drawn-out recovery in the passenger transportation and mobility space. While we have seen a strong performance in July 2020, we anticipate that the next few months will provide hope in the midst of inconsistency.

While this segment will see strong demand, a combination of local lockdowns, supply constraints and challenges in funding for first-time buyers and users will cause variation every month for the period the pandemic is not brought under control. We further believe that this is also a precursor to a recovery in the light commercial vehicle (LCV) segment which is still a few months away. We also anticipate a long-drawn recovery in the medium and heavy-duty segment well into the next financial year. The green shoots are now visible and the commercial vehicle segment can start its journey to good health!

Leaptrucks is one of the largest marketplaces for buying and selling used trucks and buses with operations in the States of Karnataka and Kerala. You can view all their listings at www.leaptrucks.com