LCVs Gearing It Up

Commercial Vehicle sales in India have been facing the brunt of weak macroeconomic conditions since the beginning of FY13. The level of activity in sectors like mining, construction and other industries has been low due to structural weakness. This has led to the sales of M&HCVs (Medium and Heavy Commercial Vehicles) to decline by 22.79% in the period April 2012 to February 2013, as compared to the corresponding period in the previous year.

However, the LCV (Light Commercial Vehicle) segment has been buzzing due to strong demand caused by increased road penetration, adaptation of the hub-and-spoke model and evolution of the supply chain. These vehicles are perfectly placed between cargo three-wheelers and pickup trucks. They carry the advantages of higher payload and better adaptability to Indian road conditions over cargo three-wheelers and they are more affordable than pickup trucks.

This has resulted in the sales of LCVs growing by 14.53% in the period April 2012 to February 2013, over the corresponding period in the previous year. For a long time, Piaggio’s Ape range ruled this space but the dynamics changed after the launch of Tata Ace. Marketed as ‘Chota Hathi’, the vehicle disrupted the market and currently has close to 60% of market share in the industry. The Ace was launched in three capacities, with GVW (Gross Vehicle Weight) of 1.2 tonnes, 1.5 tonnes and 2 tonnes, named Ace Zip, Ace and Super Ace respectively.

Also present in the market are players like M&M (Mahindra & Mahindra) and Ashok Leyland. M&M operates this through 1.1 tonne Gio and 1.8 tonne Maxximo. The Gio lost popularity because of its low payload and engine capacity. However, the Maxximo has been doing well with new technologies like ‘Fuel Smart’ introduced by M&M. This technology offers drivers to choose between performance and fuel economy depending on weight, terrain and preference.

M&M now plans to launch the Maxximo Plus to take on Tata Ace in a more competitive manner. Piaggio too recently introduced new models in the Ape family that would function on petrol, LPG and CNG. It also expressed the aim to capture about 50% of the market share in the next 18-24 months. Along with these product launches, are many companies that have plans to enter this segment. Of course, sounds like a good idea considering the long-term sustainable growth that it has to offer, especially when all the other segments in the automobile industry have not been performing too well. Among these are Maruti Udyog, Hyundai and Fiat.

Competitive pressures have been building up in this industry since quite some time now. With the entry of new players, the pressure would only intensify. Profitability of the segment at the moment seems viable and healthy. However, that would get diluted with new entrants. At the same time, there is no doubt that volumes will remain strong.