Indian Commercial Vehicle sales to hit 1.6 million units by 2016-17, suggests EY report

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  • Commercial Vehicle sales are expected to grow at a CAGR of 15% in the next five years
  • OEMs and distributors to increase cross-selling of products, promote captive finance, and variety of value-added services (VAS)
  • Need to design buses with low-floor, GPS and low levels of NVH (Noise, Vibration and Harshness)
  • 10-15% of the truck fleet remains idle due to shortage of trained drivers and inadequate service network 

Chennai, 25 April, 2012: Indian commercial vehicle (CV) sales are expected to grow at a CAGR of 15% in the next five years - from 0.8 million in 2011-12 to reach 1.6 million units by 2016-17, suggests EY report titled ‘Mega trends shaping the Indian commercial vehicle industry’. According to the report, the stakeholders across the Indian CV industry are likely to be impacted by rapidly changing events - right from the operating environment, fleet operator/ manager preferences, competition, distribution channel and also supply chain.

Urging the need of road infrastructure development to facilitate OEMs, Rakesh Batra, Partner & National Leader, Automotive Practice, EY, said,“By 2012, one expects to have six-laning of 6,500 km and a development of 1000 km of expressways. Of the 66,590 km of National Highway, only 38% are single-lane, leading to logistics inefficiencies as trucks can cover only 250 km per day vs. 600 km globally. Moreover, the development of road infrastructure enables OEMs to introduce higher power vehicles. By 2012, the modernisation of roads under the NHDP (National Highway Development Program) is expected to involve a total investment of US$47.2 billion.” 

The report identifies six mega trends that will impact the revenues, costs and profitability of participants in the Indian commercial vehicle industry:

  • Fleets focus on capacity utilisation to reduce operating costs and diversify customer base 
    • Fleet operators opt for higher tonnage multi-axle trucks, increase use of telematics and focus on total cost of ownership;
    • A substantial amount (10-15%) of the truck fleet remains idle due to shortage of trained drivers and inadequate service network;
    • As buses are being increasingly used for an inter-city travel of 400-500 km, introduction of low-floor luxury and alternate fuel powered buses are required to meet the growing demand;
    • A robust regulatory and consistent tax structure is required, though the government is coming up with tax incentives for alternate fuel powered buses.

  • Rapid urbanisation, improving road infrastructure and regulatory policies influence CV buyers and OEMs
    • Urbanisation of states and mushrooming of smaller cities to push demand for passenger and goods transport. By 2050, at least five states are expected to be predominantly urban and 12 cities in India with population of more than 20 lakh is expected to get metro rail;
    • Stringent emission, safety and anti-overloading policies push OEMs to introduce compatible products;
    • OEMs seek government aid for commercialising production of hybrid buses. Need to design buses with low-floor, GPS, and low levels of NVH (Noise, Vibration and Harshness).

  • Global OEMs redefine brand position while domestic OEMs build R&D competence and optimise costs through outsourcing and modularisation
    • Foreign OEMs to adapt their products to local needs and increase localisation;
    • Low brand perception and affinity for cost competitiveness pushes global OEMs to create local brands, outsource body-building and use alternate material for efficient production.

  • Suppliers improve local capacity and invest in R&D while improving operational efficiency and developing an aftermarket proposition
    • Foreign suppliers increase localisation and domestic suppliers improve features and quality to meet growing demand for low-cost high technology product;
    • Diversification of product range will be necessary to cater to growing truck segments (LCVs, HCVs) and reduce dependence on OEMs;
    • Adoption of quality management techniques like TQM, Kaizen and Kan-Ban to cater to increasing quality demand level of OEMs.

  • OEMs tackle manpower, economic and supply chain risks through skill development, production localisation and supplier collaboration
    • OEMs work with industry associations to improve skill level of workforce;
    • OEMs collaborate with suppliers to increase transparency of sourcing, improve overall quality and manufacturing capabilities;
    • OEMs need to continuously push for reforms with the help of industry bodies like SIAM, ACMA and FADA.

  • CV OEMs and foreign fleets induce distribution and aftermarket participants to offer value added services
    • CV aftermarket players improve service infrastructure and train personnel to handle high technology content products;
    • Increasing penetration of finance resulting in dealerships promoting captive finance products in collaboration with OEMs and also financing through local financers;
    • Value-added services (VAS) like AMCs, mobile service supports, fleet loyalty programs, and on-call support are being offered by dealerships;
    • New products like navigation, vehicle tracking, telematics, oil contracts and parts recycling are being increasingly adopted to save costs.

Thus, the EY study concludes that the competition among commercial vehicle manufacturers in India is expected to intensify as international OEMs raise the bar in terms of technology, quality, durability and reliability; while domestic OEMs invest to upgrade products and technology, strengthen dealer relationships and loyalty, reinforce distribution networks and build new competencies to defend their market shares.

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About the Report:

The report titled ‘Mega trends shaping the Indian commercial vehicle industry’.is a detailed analysis conducted by EY’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.

About EY:

EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

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