Tata Motors Slowing On Lower Demand For Commercial Vehicles

Tata Motors, the country’s largest commercial vehicle (CV) manufacturer, announced that it will suspend production in its Jamshedpur factory from June 28 to June 30 to control rising inventory levels of medium and heavy commercial vehicles (M&HCV). This has been a result of the reducing demand on the commercial vehicle front. The company had shut its CV production in the Pune plant for three days earlier this month.

On the back of the production cut, Tata Motors’ stock price had reached a low of 232.90 shedding about 2.19 per cent though it closed more or less flat. Due to the situation surrounding both passenger vehicles and commercial vehicles, share prices for Tata Motors have been down by 13.48 per cent over the last three months. The three-month returns on share prices for Ashok Leyland, the second-largest player, are negative as well – minus 14.29 per cent.

Slow economic growth and poor manufacturing output figures have been causing this slowdown. The GDP growth for Q4 FY12 stood at 5.3 per cent which is due to the poor performance of the industry and agriculture sectors. The Index of Industrial Production (IIP) figures for the month of April 2012 too reflect the under-performance of the economy with the General Index only 0.1 per cent higher as compared to April 2011. Moreover, the interest rates haven’t been reduced by the RBI, thus affecting financing and hindering growth.

All these macro figures have very well been reflected in the sales volume figures of CVs. As per the Society of Indian Automobile Manufacturers (SIAM), the total volumes in the segment grew by 6.6 per cent in May 2012 compared to the corresponding month in the previous year. Growth was attributed to LCVs which grew by 25.58 per cent while M&HCVs declined by 19.84 per cent.

As of May 2012, Tata Motors had a market share of 63.89 per cent in the CV market. The volumes for Tata Motors have followed the same trend as for the total volumes stated by SIAM. The domestic cumulative sales of Tata Motors for this fiscal are 74,272 - a growth of 1 per cent over last year. This growth has been positive because of the growing demand for light commercial vehicles (LCV). For the fiscal, LCV grew by 17 per cent over last year while M&HCV was lower by 24 per cent.

Ashok Leyland entered the LCV business in October 2011 with the launch of ‘Dost’. On the M&HCV front, the firm has been growing in double digits. Over time, the firm is transforming its image and employing an aggressive growth-focused strategy. It has also been actively bagging large export orders and has been flashing in the news frequently.

Smaller players in the segment like Eicher and Mahindra Navistar showed positive growth for both LCV and M&HCV. The reason for this is that these companies have a smaller base and their current volumes are a fraction of the volumes of Tata Motors. Overall, the performance of commercial vehicles has been drastically affecting the sales of Tata Motors and this trend would continue till we see better conditions in manufacturing and industry in India. 

Total Commercial Vehicle Sales Volume (SIAM)

Commercial Vehicle Sales Volume For Tata Motors 

Commercial Vehicle Sales Volume For Ashok Leyland