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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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Technology and usage of commercial vehicles Transport sector consists mainly of rail and road segments. Railways carry long distance heavy cargo such as fertilizer, steel, grain, salt etc. HCVs complement and compete with railways for such cargo. M&HCVs are used for transport of heavy commodities such as steel cement, fertilizers etc. LCVs are preferred for high volume low bulk cargo such as consumer goods, textiles, for short distance haulage. A LCV is defined in the Motor Vehicles Act as a vehicle with GVW of not more than 6 ton. A HCV is defined as vehicle with GVW of more than 6 ton. Gross vehicle weight is defined as vehicle weight plus rated payload. Rated payload is the maximum weight permitted to be loaded on the vehicle under Motor Vehicle Act. The payload determines the earning capacity of the vehicle, since freight rates are charged on the basis of ton/ km transported. The payloads in the Indian market range from 0.675 ton to 40 ton. However in India, overloading ie loading the vehicle with weight in excess of its rated payload is the norm, although it is a punishable offence. For overloading, the size of platform and power of engine play a major role. The important factor for evaluating production or demand will be vehicle ton produced/ sold, rather than number of vehicles. For example: for a requirement of 6 ton payload the transporter can purchase either 3 vehicles with 2 ton payload or 2 vehicles with 3 ton payload. The CVs are compared, based on price per payload vice-versa operating cost of the vehicle. On the basis of fuel used, vehicles can be classified as diesel or petrol driven vehicles. Diesel vehicles are economical and more popular in India. Petrol vehicles have strong niche in hilly/ cold areas where vehicles require a cold start. In India, trucks and buses have the same chassis and other features, with only the body being different. Elsewhere in the world these two differ in terms of suspension, steering systems, number of axles etc. As India lacked expertise in vehicle manufacture, technology had to come from outside the country. Telco had a collaboration with Mercedes-Benz for some time, however it was discontinued later. Oligopolistic conditions in the commercial vehicles segment prevented technology advancement. The truck segment is still dominated by single or twin axle vehicles. Very low prices and low labor costs favored small fuel-inefficient units. Further, the over loading possibility with single axle trucks in comparison to multi axle vehicles (MAV) nullifies the financial advantages resulting in subdued demand for MAVs in the country. To make matters worse for MAVs, congestion at truck terminals in urban centers virtually rule out the entry for them. Commercial vehicles business is characterized by strong entry barriers of high initial cost, requirement of strong distribution/ after sales service network, vendor/ ancillary network, long gestation period and technological adaptations to peculiar Indian conditions etc. Due to these barriers, commercial vehicle sector, unlike passenger cars, does not face any significant immediate threat from new MNC ventures. Product life-cycle for CV has become shorter as players have accelerated new product launches to retain market shares. New products that cater to niche consumer segments have also increased the market segmentation. High ancillarisation is an integral feature of the industry. Typically 60-70% of the components are sourced from third party vendors. Development and upkeep of an ancillary network is one of the most crucial tasks. On the face of balance sheet, material cost accounts for about 70-75% of total cost for CVs. This however should be interpreted keeping in mind that typically, about 60-70% of components are sourced from outside. These components, treated as material cost have in-built overheads (which are fixed cost) of the vendors. Emission Norms: India is implementing emission norms in two phases. The Euro I norms were implemented in 1996 and Euro II norms have become applicable wef 1 April, 2000. As both ALL and Telco have technical collaboration with Hino engines and Cummins respectively for producing engines meeting Y2K emission norms, the CV segment will not be facing any major threat. But it is leading to increase in prices of CV in the near future.
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