2012 Commercial Vehicles Special: Why India matters to CV makers globally

The global CV industry in the mature markets of Europe and the US has been under pressure as a result of the economic slowdown. This can be seen in the fall in capacity utilisation and sales and consequently on earnings.

Martin Lundstedt, president and CEO of Scania, in a report for the first nine months of 2012, said his company’s earnings were affected by lower economic activity and hesitancy among customers to invest in new vehicles. This, he said, has occurred despite a growing replacement market in Europe. Last week, Daimler AG, the world’s largest CV manufacturer, said that increasingly markets outside of traditional truck sales regions are becoming more important for Mercedes-Benz. One market is China that is playing a hugely important role. Back in 2007, China was ranked 17th on the list of the top sales markets for Mercedes-Benz trucks but this year the country has moved up to fifth place.Proof, if any were required that China is the growth driver of the Asian scenario. The head of the company’s trucks division, Hubertus Troska has said, "The segment of imported Mercedes-Benz premium trucks is growing in importance in many countries thanks to our reliable high-quality products, our perfect service, and the outstanding total cost of ownership that our trucks offer.”

Apart from China, Troska mentioned Russia, and Saudi Arabia as additional stable pillars to counteract the strong cyclical fluctuations in the European market.

It is no wonder that both these players have outlined major plans for the Indian market. In September 2012, Daimler India Commercial Vehicles (DICV) launched the first of its heavy duty range and then some weeks later, the light duty range. The importance of the Indian market can be gauged by how Daimler went about its India launch. It kicked off a number of familiarisation drives that included a country-wide BharatBenz Yatra to give the potential buyers a feel of the new range.

Alongside the launch, DICV has worked around the clock to put in place a network of 28 dealers. At the time of the launch, the dealer network has covered about 89 percent of the Indian market. By the end of this year, the company has gone on record to say that it hopes to have between 40-50 dealers in place. It is also looking at setting up dealers in the north-east.

Swedish trucking major Scania has also got into the act and recently launched a quartet of heavy duty products for trail runs. The company is setting up its plant on the outskirts of Bangalore and is building it in two phases. In phase one, work on the truck assembly will be completed while the bus assembly facility is slated to be completed by the end of 2013 or early 2014.

Both Europe-based CV manufacturers are a study in contrast. While DICV is clearly aiming at big sales, Scania has said it plans to produce 2,000 trucks and 1,000 buses per annum in the next five years. Divergent as these approaches may appear, there is no denying the fact that these players want their share in a pie that is only set to increase.

Banking on technology

India’s CV sector is currently dominated by Tata Motors and Ashok Leyland who, between them, account for 70 percent of the market. For the period April-November 2012, Ashok Leyland sold 65,576 units while Tata sold 289,214 units. Among new players, Volvo trucks account for 0.8 percent while Mahindra Navistar Automotives, the only overseas JV for India, accounts for 1.54 percent of the CV market after being here for close to five months. So as new players make their forays, their aim would be to grab market share from existing players with products that are technologically superior in terms of fuel efficiency and powertrain.

In the current fiscal, the slowdown combined with the high interest regime has resulted in a fall in H&HCV sales by about 20 percent. In terms of figures, the April-November 2012 sales were 178,974 units as against 213,937 units in the previous year-earlier period.

Underlying the approach of players to the Indian market is localisation. DICV has said that its products have a 85 percent localisation while in the case of Scania, it is on the cards. Interestingly, the latter has kept its tie-up for the mining and construction sector with L&T intact even though mining has been under pressure thanks to alleged scandals as well as environment-related issues.

What is interesting is that these latest entrants into India are choosing to operate in this market on their own and not in JVs except for Eicher and Volvo where the tie-up is for the manufacture of Euro 5 and 6 engines for markets in Europe and Japan. Then another driver is the need to be able to meet strict emission norms. This could well be why MNCs wish to establish their own subsidiaries in the country.

It is a no-brainer that with better roads, the need for long haulage will be imperative. That is where truck-trailers will play a key role and the new entrants are key to grab a portion of that market. And while both players as well as those here will look to some numbers, they will tap their overseas R&D departments for technologies that concern for example, hybrid trucks and buses, so that environmental norms can be complied with.

As overseas players strengthen their India presence, they will also be looking for synergies with markets that are ‘emerging’ as India’s is. Russia is one such market for Daimler. Russia was ranked 20th for the brand’s truck sales in 2007. Sales there have risen continually since that time, and Russia is now the sixth most important market for Mercedes-Benz Trucks. It is Europe’s largest market.

There are also other markets that do not appear apparent. For example, Saudi Arabia ranked 13th on the list of the top sales markets for Mercedes-Benz Trucks in 2007; in 2012 it rose to eighth.

Two trends can currently be observed in the world’s expanding truck markets such as China, India, and Russia. The first is that local manufacturers are technically upgrading their volume segment models, partly because of increasingly stringent emission standards. The second trend is that the demand for premium products built by manufacturers from the traditional Triad sales markets is increasing, because attributes such as reliability, efficiency, and durability are becoming more important for heavy-duty applications in growing economies.

And finally, what will make the difference going forward is the quality of aftermarket service and reach. That has not been lost on the new and current incumbents. Training for drivers both for better fuel efficiency on the one hand and for safety, on the other are being done concurrently. India, like its compatriot emerging markets, is clearly one of the most exciting in the world today. It can also be a market to which it can bring uniquely Indian attributes that include a strong supplier chain, innovative products and the benefits of corporate management and responsibility.

BRIAN DE SOUZA