Indian Commercial Vehicle Market Outlook

After the small car assault on Indian roads now the global commercial vehicle makers are lining up to share the CV market segment that is growing at around 20% Year on Year except for 2008-009. Recent past market movements and consolidations are also getting cleared to determine the way Indian CV market is going to be shaping up.

Indian automotive industry, especially the CV segment has come a long way since 1950’s to become the 4th largest market in the world now with over 400,000 unit sales. The growth potential of Indian market is well accepted to attract investment from the global majors not just in installed capacities but in local R&D, New product design/development initiatives for Indian as well as export markets.

Market Scenario

Till pre-1980s while the Indian market was a closed market with poor Indian roads, infrastructure and demand for low cost vehicles witnessed sluggish pace in the styling, engineering in engine, drives of the vehicles. Poor road conditions contributed to the increased cost of ownership due to heavy maintenance. There was less scope for innovation hence the growth in variants of the vehicles was severely restricted.

The year 1991 saw the opening up of Indian markets for foreign investment and focussed investment in infrastructure development. The collaboration with global auto makers in terms of investments and technology started taking place. TATA had a collaboration with Daimler AG dating back to 1954 to assemble and sell the Mercedes Benz range of LCV in India. Until February 2010 Daimler AG had 5.4% stake in TATA motors that it decided to offload to pursue its own interest in India.

The development of Golden Quadrilateral Highway program that stretches across the India and revamped existing national highways in to multi and one-way lanes probably is one of the defining phases of Indian road transport and made headway for the CV industry. Presently India has over 57,000 km of National highway including stretches of express ways. A distance of around 400 km once took over 15 hrs was now possible to cover at half the time depending upon what time of the day the travel is made.

With better highway infrastructure providing better bearing capacity is leading to an increased demand for Multi Axle Vehicles. MAVs also offer better cost per tonne by reducing number of trips, fuel consumption and congestion. The same time Indian retail and logistics industries were fast turning in to organized sectors. The logistics model turned in to HUB and spoke model for distribution thereby giving a big boost for the LCV segment further to take the inroads. Government and local city corporations are working on policies further to restrict LCV within city limits that would trigger a demand of sub ton segment.

In passenger vehicle segment, the market is made up of small tourist operators for long distance travels usually over night and state run transport corporations. However the state transport corporations are loss making with inefficient operations, using old fleet of buses that breakdown more than they run and consume a lot of fuel. This gave rise to a new market for private operators that entered with new fleet and better operations. The light passenger vehicles are gaining market share by running on secondary roads, state highways connecting smaller cities. In urban market the school, office shuttles, ambulances etc., create a great prospect in next 5 years.

With rapid population growth in metros, the local municipal corporations have started looking in to rapid transit systems. The Volvo, Mercedes buses got great reception for long distance travel with large deals from not only the private travel companies like Raj travels but also the state road transport companies.

Further to this Indian Government came up with Automotive mission plan (from 2006 to 2016) to promote and grow the Automotive sector with a mission of making Auto Sector to contribute 10% to the Indian GDP this is around 6% presently, that would translate the turnover of over $150 billion and having created jobs to over 25 million people by 2016 in Auto eco-system. To aid to this Government has invested for world class infrastructure for localised R&D, testing, certification and validations at; Manesar, Chennai, ARAI (automotive research association of India) and VRDE (vehicle research and development establishment) at Ahmednagar. World class testing track at Pithampur


Market segment
In 2009 CV market saw sales of 384,000 units of which 45% were LCV. The export segment saw over 42,000 units mainly to Middle East and African countries.

Vehicle type	%
M&HCV	39%
LCV	45%
M&HC passenger vehicles	9%
LC Passenger vehicle	7%

The Commercial vehicles are classified based on Gross Vehicle weight which the weight of the vehicle and the maximum weight the vehicle are allowed to carry. GVW of over 16 tonnes the vehicles are classified as HCV, 7.5 to 16 tonnes as MCV and less that 7.5 tonnes are LCV.


Market players

The Indian majors control majority of the market share with TATA motors enjoying major share of that in both cargo and passenger vehicle with a share of 64%. TATA, Ashok Leyland and Mahindra & Mahindra together control over 84% share. Over last 5 years, the CV market has seen global majors entering India eyeing to taste this huge potential. A lot of consolidations, JVs have taken place to position them in India, ASEAN market.

TATA motors	Daimler AG had 5.4% stake in TATA TATA assembled and sold Mercedes Benz models for about 15 years since 1954 Daimler AG sold its stake to TATA sons and CITI Group to pursue its own interest in India Bought Daewoo Commercial Vehicles Korea in 2004 JV with Afzal Motors Pakistan to produce CV TATA buys 21% stake in Hispano Carraro SA the Spanish bus maker and takes remaining 79% in 2009 TATA signs JV with Marco Polo Brazil to build bus for rapid transit systems. TATA holds 51% and MarcoPolo 49% TATA signs JV with Thonburi Motors of Thailand with 70%-30% stakes respectively.
Ashok Leyland Nissan	Ashok Leyland the 2nd largest CV maker formed JV with Nissan 2010 for LCV for Indian and export. It also formed another two JVs for Powertrain for LCV and technology development.
Mahindra & Mahindra Navistar Inc.,	Mahindra is market leader in Utility vehicles India and export markets In 2007 Joined hands with Navistar Inc JV wih Navistar Inc to produce Diesel Engine for the CVs
Eicher Motors AB Volvo	AB Volvo formed JV with Eicher motors the LCV major in India. The JV is called VE commercial vehicles Ltd.,  Volvo controls 45.6% and the balance by Eicher.
Swaraz Mazda	A JV formed between Swaraj, Mazda Japan, Punjab tractors and Sumitomo to Launch LCV Presently Sumitomo owns 53.5% stake.
Force Motors MAN AG	Force motors a leading CV marker of India and MAN AG have a 50:50 JV based at Pithampur India
Daimler AG	Had in talks with Hero Group, the market leader in 2 wheeler but dissolved it in 2009 with both organizations trying to focus on their key markets. Daimler is planning to launch its first fleet by 2011 from Chennai where the plant is being built and a test track is set up
AB Scania	Had an agreement with L&T, the industrial conglomerate for sales in India. But Scania a conservative yet firm in its plans is making a feasibility study to start manufacturing in India and might look for a JV to leverage dealer network
Iveco SPA (CV unit of Fiat)	Had relationship with Ashok Leyland but Ashok Leyland bought back the 30% and with TATA having agreement with FIAT, the relationship might have an extra weight
Paccar Inc	The US based truck maker is keen to enter India with planning to have office in Pune, India

Opportunities:
1) Global markets getting stagnant, while China, India and Thiland driving double digit growth
2) Indian GDP targeted at 8-9.5% growth in coming years leading to the need for massive infrastructure movement
3) India does not have a clearly defined scrap policy for old vehicles. So far the small operators have been pushing the old vehicles on road to maintain their bottom-line. However this fleet needs to be replaced with better technology vehicles with better load capacity and less maintenance
4) India Retail, logistic, distribution sectors getting organized creating opportunity for CV market to split in to further more segments

5) Easy financial options. Most of the vehicle makers now have a strategic relationship with bankers and also their own financial units for easy credit.

6) More specialized vehicles required for perishable, oil, mining sectors

Challenges

1) Excise, interest rate, fuel price, raw material price hikes

2) Trained drivers for sophisticated vehicles and planned maintenance

3) Increased competition and expansion in capacity would pressure on margins leading to just a volume driven model

The commercial vehicle market is purely an economic pay and has moved cyclically, however India now established itself as a global manufacturing hub for sourcing and now proving a high growth market also makes it surely a long term story for CV makers.

Picture courtesy - TATA, Mahindra navistar, swaraz mazda, Volvo india.