Auto Sector: CV Segment

If last year was about recovery in the auto sector, especially in the passenger car sector, this year the growth story would be about commercial vehicles (CV) sector. Trucks, which actually run the economy, were on the ebb for most part of 2009 but it was only after Q2 that it started showing signs of improvement. And that recovery is expected to get into a major flurry of growth in the coming months of 2010.
Why are we saying that CV segment is where the next growth lies?
•The sales figures of growing sales over the past few month. Tata Motors and Ashok Leyland, with a combined market share of 70%, reported a whopping rise in off take. Tata Motors sales jumped 116% and that of Ashok Leyland by 136% in Nov 09’. In Dec 09’, Tata Motors sold 33,519 CVs v/s 14,056 units in Nov 09’ and Ashok Leyland sold 6099 units in Dec 09’ compared to 4695 units in Nov 09’. And the figures in the ensuing months is expected to get only better.
•The sales have surged due to the basic fundamental change in the economy. The robust 7.9% GDP growth and with expectations of ending the fiscal with a growth of 6.5% to 7% indicates very good economic recovery. That in itself is an indication that things are moving up.
•The strong GDP number also indicates that momentum is picking up in the manufacturing and mining sector. And this means more demand for trucks. There is also a sharp rise in demand and movement of cement and this too is expected to add to the demand for trucks.
•Another major factor which will help boost the demand is the Govt going all out to speed up delivery of buses under Jawaharlal Nehru National Urban Renewal Mission. 2500 buses have to be supplied by Tata Motors and Ashok Leyland before end of March 2010 to Delhi Transport Corporation.
•Truck makers – Tata Motors, Ashok Leyland and Volvo have all hiked or announced intentions to hike their truck prices as soon as the year 2010 began. This was mainly on account of rise in steel prices, a major input, which ahs gone up by $60-80 to over $550 a tonne in the past two months. Demand is not expected to be dampened by this move as the economy is on the go right now. Plus after having sat out the past year on low demand and even temporary plant shut downs, the CV makers are now raring to go.
•Everyone is expecting a hike in interest rates and more cost hikes are also expected, given the rising cost of raw materials. To probably beat that, one could see more buying of trucks till end of March 2010.
•And the CV makers are also looking at a very robust year ahead, which is why Tata Motors, Ashok Leyland, Eicher, Volvo, Daimler and Mahindra-Navistar are all lining up new launches. The market leader Tata Motors has lined up 15 new CV launches over the next 12 months. Mahindra Navistar, the JV company of Mahindra & Mahindra, has unveiled two new trucks and aims to have leadership position in the 25-31 tonne category within the next 6-7 years. VE Commercial Vehicles, the JV between Volvo and Eicher, launched one of the costliest and advanced trucks with a price tag of Rs 85 lakh, before taxes.
All in all, if 2009 was the year of the passenger cars, 2010 will surely be the year of the Commercial Vehicles.