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| India Infoline Sector Reports | Sat, 17-Jan-2004 12:00:35 IST (GMT+5:30) | |
| Automobile - LCV/ HCV | ||
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The commercial vehicle sector can be broadly classified as Light Commercial Vehicles (LCV) and Medium & Heavy Commercial vehicles (M&HCV) based on the Gross Vehicle Weight (GVW) of the vehicle. The HCV segment can be further classified into three segments based on gross vehicle weight as follows - ICV: Intermediate commercial vehicle with GVW of 8 to 10 ton. MCV: Medium commercial vehicles with GVW of 10 to 15 ton. HCV: GVW of 16 ton and above. M&HCVs can also be classified into two categories depending on their usage as trucks and buses. Buses are passenger carriers. Trucks include goods carriers along with specialized vehicles like dumpers, tractor-trailers etc. The ICVs fall in the load category of 8 to 10 ton GVW and are often substituted for medium or heavy commercial vehicles in trunk routes and cities. Eicher Motors and Swaraj Mazda are two manufacturers operating in this segment. The composition of truck sales as a total of HCV sales fluctuated between 67% and 80% in the nineties. This wide variation in composition of HCV sales is due to the cyclical nature of truck sales compared to steady sales witnessed by buses. Therefore, during a downturn in truck demand, the contribution from buses, though steady in volumes, increases in terms of percentage of total HCV sales. The contribution by bus sales to total M&HCV sales has increased from 18.5% in FY97 to 33.16% in FY2001. In terms of truck sales, Telco commands a leadership by cornering 77.1% of the total truck sales with the rest taken up by Ashok Leyland. Hindustan Motors also account for about 0.7% of total sales but it exports all its products. In the bus segment, Ashok Leyland had a market share of 48.3% in FY2000 with the rest being taken by Telco. As indicated in the table below, sales of LCVs kept pace with HCVs from FY94 to FY96.The volume differential between M&HCVs and LCVs has been widening since FY97. In FY2001 this gap has been on a decline as the LCV sales increased by 4.4% but the HCV sales dropped by 21.3%. Sales Of LCVs And M & HCVs: -
Source: SIAM In the last twenty years or so, the sales of the LCVs in relation to M&HCVs has increased its share from 27.4% in FY81 to 71.7% in FY2001 which was up from 54.1% FY2000. However during the current fiscal 2001-02 the total commercial vehicle sales declined by 6% y-o-y in April- August especially in the LCV segment indicating mixed fortunes for different players in the industry. Region Wise Sales Breakup ( till FY99 ) If we compare region wise sales data for two years (CY99 and CY98), we find some interesting changes. In 1998, sales were maximum in the western region with Maharashtra leading the pack. However, in 1999, the northern region just managed to inch ahead of the western region with Uttar Pradesh beating others to the post. The southern region came in third in both the years. The industrialized states in the west have traditionally seen higher truck sales. Truck Sales Break-up By Region
Source : SIAM Interestingly, southern India leads in sales of buses. This is because of a) the presence of Ashok Leyland and other private sector players in the region and b) the region as a whole is not well developed in terms of being connected by rail. In 1999, sales in all the regions fell except that in the west. Bus Sales Break-up By Region
Source : SIAM East zone lags behind the others, mainly because the transport requirements of the region are met by railways. The region is also trailing in terms of road infrastructure. LCV Sales Break-up By Region
Source : SIAM When it comes to LCV's, once again the western region leads the other areas in terms of sales. The southern region comes in second. One reason for this could be the fact that a larger number of towns and cities are concentrated in these two regions. Government Policies The liberalization of government policy with respect to foreign, technical and financial collaboration lead to a sudden spurt in technical collaboration in LCV segment. For example: Toyota Motor, Mitsubishi and Mazda entered the commercial vehicle segment in collaboration with DCM, Eicher and Swaraj Motors respectively. The liberal foreign technology policy, lead to substantial improvement in technology of commercial vehicles. But at the same time the import bill jumped at a rapid pace as these vehicles were having high import content. The broad banding introduced in 1984, has helped producers to optimize installed capacity and adjust the product mix to market demand. This in turn helped in obtaining economies of scale for larger players like Telco and M&M. The automobile industry is a major contributor to the GOI exchequer in the form of excise duty, customs and other levies. But the government expenditure for development of roads is just 25% of the total contribution to the GOI exchequer. For example in FY95, the GOI spent just Rs3.5bn on roads compared to automobile industry’s contribution to GOI exchequer of Rs16.62bn. The Commercial Vehicle sector is controlled by GOI policies on depreciation norms, diesel pricing and Motor Vehicles Act. The change in depreciation norms for CV in the finance bill affects the demand for vehicles, as they are purchased by companies to obtain tax shelter along with utility. In the past, the GOI changed the depreciation norms to control the tax collection from corporations. For example: The decrease in depreciation rates from 33% in 1989-90 to 20% in 1990-91 lead to drop in MUVs and CVs. During fiscal 2001-02 the depreciation rates hiked from 40% to 50% in a move to reduce the taxable profit in transport business. The Motor Vehicle Act came into effect from July 1989. It was intended to streamline laws related to emission norms, maximum age of vehicles, restriction on payloads and other safety measures. But the law was never implemented with full heart, leading to laxity of norms in all aspects of automobile industry. For example: over loading of vehicle by three times, usage of very old vehicles to carry lower loads for shorter hauls etc.The cut-off life of vehicles and overloading are governed by Motor Vehicles Act. Therefore any change in cut-off age fixed for scrapping of old vehicles affects the number of vehicles available to carry the load in the country. For example: The Supreme Court order to scrap more than 15 year old commercial vehicles in the capital, will lead to reduction of 15,000 vehicles. This will lead to increased demand for new commercial vehicles as the transport tonnage drops substantially. Until 1986, trucking was a regulated activity with truck operations restricted to short-haul intra-state transport. Multi-state trucking permits were issued by states, subject to certain ceilings. The ceiling on national permits was removed in 1986, resulting in adequate availability of trucking capacity in the economy. The availability and prices of diesel is controlled by the GOI through restriction on distribution and imports. The road transport was paralyzed during Gulf war due to shortage of diesel in the country, since it heavily depends on oil imports. The total dismantling of Administered Price Mechanism (APM) latest by March2002 and subsequent reforms has resulted in the diesel prices in the country being linked to international crude prices. In 1999-2000 budget, one rupee cess was imposed on per liter diesel and has been in place for last two years for funding the rural road sector and the National Highway Projects. The corpus of Rs9620 mn from the cess fund has been made available to States during FY2000-01. The total plan outlay for roads in the budget 2001-02 is Rs87270 mn.The pricing of the vehicle to a large extent depends on the excise duty charged by the GOI on ex-factory price. After the rationalization of excise duty in the budget 2001-02 ; the special excise duty for CVs is levied at 16% and total duty is pegged at 32%.The differential in duty structure also affects the demand for respective segments e.g. differential duty provisions between 8-seater and 10-seater changed the demand for each of the segments. Over and above state governments charge sales tax and octroi to effect the final price to customer. In the current year, uniform sales tax to the tune of 12% has been levied in all the states across India. This has in turn affected significant increase in the final prices of commercial vehicles specifically in the northern India. |
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