Outlook 2019
With the BSVI emission regulation slated for mid-2020, the year 2019 could well be a year of much activity for the CV industry in India.
With the BSVI emission regulations slated for mid-2020, the year 2019 could well be a year of much activity for the CV industry in India.
The 2018 calendar year came to a close with a slight drop in overall CV sales. It was M&HCVs, which saw a significant drop in sales when compared to the other CV segments. Linked with the implementation of new axle norms, the drop in sales is said to be a result of the extra capacity added almost overnight, and in a market environment where the demand is not that strong. Following strong CV sales in FY2016-17 and FY2017-18, the drop in CV sales at the fag end of the 2018 calendar year also reflected on the rise in input costs, according to an industry expert. The rise in input costs could not be passed on by the fleet operators to their customers, he mentioned. If this would affect the growth of the CV industry in 2019, the rise in fuel prices, which rank at the top of the input costs of a fleet operator, and account for the biggest operational expenditure, proved to be a big dampener. Expressed Vinod Sahay, CEO, Mahindra Truck & Bus, that their calculation showed that fuel costs have come to account for over 55 per cent of the operating costs post the diesel price hike. Earlier they accounted for 50 per cent. Terming the year 2019 to be a challenging year, Sahay drew attention to the benefit of the new axle norms going to the consignor rather than the fleet operator because of the demand and supply situation.
With most CV majors having passed on the rise in input costs to CV buyers in the form of a price hike, the quest for efficient CVs is going to increase in 2019. Mentioned an industry expert. This, he said, would be against a backdrop of rising stress at the transporters. With toll costs starting to eat into the operational costs, fleet operators in 2019 are expected to replace their aging trucks with newer, fuel efficient and reliable
CVs. If this would include a move to higher tonnage, the possibility of overloading cannot be ruled out. With the talk of yet another important regulation on safety coming in, an industry source opined that it would serve to fully implement the Bus Code and Truck Code in 2019. He claimed that the two codes with a substantial safety imperative are being followed by OEs in flesh and spirit rather than the unorganised truck and bus bodybuilders. Mentioned Sahay in response to a query on the upcoming safety regulation, that an OE player has to meet the norms when he makes a CV truck cabin or a bus body. The same norms may not apply if a cabin on a cowl chassis is made outside. “Chances are that the application of AIS155 norms that are coming in force from April will be limited to OE players,” he added. According to V G Ramakrishnan, Managing Director. Aventuem Advisors LLP, there is a need to ensure that safety regulations are effectively implemented.
With BSIV emission regulation having the shortest lifespan of three years, the race to meet the BSVI emission regulations in mid-2020 will intensity in 2019. It will be the trend of the year, said Ramakrishnan. Expressed Kaushik Madhavan, Vice President – Mobility (South Asia), Frost & Sullivan, that urbanisation, infrastructure development, connected mobility, and alternate fuel as well as hybrid technology would be the key trends for 2019. Echoing Ramakrishnan’s sentiments, he mentioned that an amount of pre-buying was expected in 2019. Of the opinion that pre-buying in 2019 would trigger high volume growth, Ramakrishnan averred, “CV makers will start introducing BSVI CVs from as early as October and November 2019.” Stated Sahay, “Since a BSIV truck cannot be sold even if it were produced earlier (before the BSVI deadline), no CV major will be ready to take the risk of building stock with an impression that it will sell before the BSIV deadline. Since the size of the opportunity will be difficult to gauge, the only window available would be between August 2019 and December 2019.” In the January-March 2020 quarter, manufacturers are expected to produce CVs to order. Challenges in 2019 will be
manifold for certain. Vendors are likely to stop producing some of the components that are moving to BSVI by as early as August 2019. CV majors are expected to stop producing some of the low selling variants by around the same time. Regular production of lead models would most likely stop in December 2019. According to Ramakrishnan, heavy discounts on vehicles that are slow moving will be a key event in 2019. Many models will be phased out in March 2020, he averred.
If some of the phased out models could be earmarked for exports, the year 2019 is slated to be a challenging year for certain. A flurry of judicial interventions reinforcing the need to adhere to BSVI regulations expected in 2019, said Ramakrishnan. He mentioned that the CV industry could gain from the ongoing warehousing consolidation and mechanisation. With trucks expected to work like aircraft, and spend less time at the loading and unloading bays in view of the asset quality and costs going up, the CV industry in 2019 is also set to gain from some changes in the GST structure that are likely. Not a year of downcycle, according to Sahay, the CV industry should do reasonably well in 2019. A reason for some worry, however, is on the account of the macroeconomic parameters that are not as good as they were a few months ago. If the same trend continues in 2019, the effect of it on growth cannot be ruled out. With the market outlook not as positive as it was a couple of months back, the CV industry in 2019 could profit from some dip in operational costs on account of fuel prices staying low. This would be influenced by a subdued global economic atmosphere, according to Ramakrishnan. A trend identified in 2018, and expected to continue in 2019 would be of bigger fleets taking advantage of GST for their ability to pay tax through forward charge mechanism. This would ensure them better profit margins, and reduce their need to contract smaller fleets. In view of the same, Ramakrishnan said that the markets are consolidating on higher tonnage. He stated that the trend has been evident for the last five years. As the movement towards consolidation of buying and shifting of loads increases as CV costs go up, the pressure on business expansion by smaller fleets would also go up, added Ramakrishnan.
If the smaller fleets are expected to find newer ways of staying relevant amid rising challenges in 2019, the year is also expected to a period of stricter implementation of overloading norms. Gaining from the sanction of large government infra projects, tipper sales in 2019 are expected to exceed that of the haulage segment. With the third and fourth quarter of 2019 expected to witness high sales volumes, according to Ramakrishnan, the year 2019 will also be a year of national elections. An amount of uncertainty will be there. With there being the risk of fiscal expansion at the cost of increased fiscal deficit, the
year 2019 is likely to be a year of much pre-buying as well. CVs makers are expected to reveal the price of the BSVI CVs as they firm up on the technology strategies they will pursue. They are currently said to be experimenting with EGR, EGR and SCR combinations, and even EGR and EGR combinations to meet Euro6 norms. With new axle norms adding almost one full year of sale in the industry in one day, and diesel prices not backed by an equivalent rise in freight rates, 2019 calendar year is expected to see a decent uptake in the first three months. The period between July 2019 and December 2019 will be a good period for the CV industry, according to Sahay. He mentioned that TCO will be a critical challenge for fleets. Mentioned Madhavan that the shift towards higher tonnage will continue in 2019 with an eye on profitable operating economics. A year of shift towards fully-built CVs, and of fresh investments by OEs to further arm as well as expand their network, an expansion of spares and service network is expected to rank high in line with rising dependence of operators on CV makers in 2019. If CV makers will invest in training mechanics to cater to the service needs of BSIV CVs in 2019, they are also expected to chalk out similar strategies for the period after BSVI norms come into force. To take advantage of the spares and service market growth for CVs, new players are expected to enter the fray in 2019. They could play the role of a franchise for CV majors, or look at investing in an independent network.
Expected to be a year of few launches, 2019 will see CV manufacturers work on new models that they would introduce post the implementation of BSVI. These would stress on a higher payload in the rigid as well as the tractor-trailer segments ( and even though the number suggests that the tonnage shift has slowed post the axle norms). In the rigid segments, manufacturers and their vendors are expected to spend an amount of their time and resources to re-engineer some of their existing as well as new models at the lighter and heavier end. This would be borne out of the packaging challenges posed by the need to move to BSVI, and at the higher end, to accommodate the changes effected by the new axle norms. With the 37-tonne shifting to 41.5-tonnes with the new axle norms, CV majors are expected to look at the next level of 47.5 or 49-tonnes. With the 49-tonnes tractor-trailer combination going to 55-tonnes effectively with the new axle norms, a shift up is expected in that segment too. It is subject to the road conditions and the length of the vehicles, if not for the availability of load.