‘Light Commercial Vehicles’ are expected to make up for the decline in ‘Heavy Commercial Vehicles’, suggests Ernst & Young report
Chennai, 26 February, 2013: India’s commercial vehicle (CV) sales is witnessing flat growth, as the demand for Light Commercial Vehicles (LCVs) is making up for the sharp decline in sales of Medium and Heavy Commercial Vehicles (M&HCVs), suggests Ernst & Young report titled, ‘Mega trends shaping the Indian commercial vehicle industry’. While LCVs and M&HCVs witnessed strong growth over FY09-12, with CAGRs of 32% and 24% respectively, the YOY growth during 9MFY13, stands at 16% for LCVs and -19% for HCVs as per SIAM data.
Urging the need of better infrastructure and technology development for the growth of CVs in India, Kapil Arora, Partner, Automotive Practice, Ernst & Young, said,“The long-term growth potential of the commercial vehicle segment is conditional on the economy accelerating back to 7%–8% GDP growth per annum and the Government expediting policies that foster infrastructure development and support the growth of manufacturing sector. The industry is seeking favourable policy support from the Government and continued focus on reforms to reinvigorate investment sentiment and bring the auto sector back on track.”
Furthermore, adds Arora, ‘’Apart from focusing on R&D to develop products for the Indian market and introducing fuel efficient technologies, the industry needs to secure resources, particularly talent, through investments in training and upgrading skills of the workforce.”
The report identifies six mega trends that will impact the revenues, costs and profitability of participants in the Indian commercial vehicle industry:
- Economic slowdown, delays in infrastructure projects and evolving regulations create demand uncertainty and impact OEMs’ product strategies - Policies such as deregulation of fuel prices and the new bus-body building code drive OEMs to introduce compatible products and adopt process-oriented bus-body manufacturing.
- Fleets increase focus on total cost of ownership (TCO) and restructure composition to include more LCVs - Fleets consider using TCO as an important procurement and fleet management criterion. In addition, freight transporters add more LCVs to support hub-and-spoke distribution model and increase adoption of used trucks to reduce fleet acquisition cost.
- Global OEMs design products for the domestic market and look at developing India as an export hub - Global OEMs will also be looking to make their alliances with domestic players successful, to leverage the latter’s understanding of the local market and their distribution infrastructure.
- Suppliers increase localisation, improve quality standards and diversify to related sectors - Suppliers diversifying to related sectors, such as the off-road CV, the railways and defense industries to reduce exposure to uncertain CV demand.
- OEMs balancing the need to be flexible while securing access to talent, supply chain and technology - Set up technical centers to strengthen R&D capabilities and overcome skill constraints.
- OEMs to focus on raising after-sales service standards, while dealers adopt measures to improve operational efficiency - OEMs encourage dealers to implement IT systems for efficient inventory management and enable fleets to order vehicle parts and book servicing online.
Ernst & Young study suggests that though fundamental drivers of the industry have not changed, key stakeholders will need to re-calibrate their strategies to be in tune with a market that has shifted into a lower gear.
Thus, the Ernst & Young study concludes that a careful assessment of the industry ecosystem - an uncertain operating environment, changing preferences of fleet operators, rising competitive intensity, new supply chain dynamics and novel concepts in distribution channels - is imperative to respond to industry forces and weather the intermittent rough patch.
About the Report
The report titled ‘Mega trends shaping the Indian commercial vehicle industry’ is a detailed analysis conducted by Ernst & Young’s Global Automotive Center. It answers most of the questions of the stakeholders across the Indian commercial vehicles industry, which is likely to be impacted by fast changing events across the automotive ecosystem. In summary, the times ahead in the future will be a major stage of evolution for the Indian auto industry.
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