The first of the two panel discussions, as part of the Apollo-CV Awards 2017, focused on the growth of CV industry in 2017.
Panelists (L to R)
Ravi Chawla, Managing Director, Gulf Oil Lubricants India.
A Sreerama Rao, Executive Vice President – Sales, Marketing & Aftermarket, Volvo Trucks.
Nalin Mehta, Managing Director and Chief Executive Officer, Mahindra Trucks and Buses.
Rajinder Singh Sachdeva, Executive VP and Head Technology, Volvo Eicher Commercial Vehicles.
T Venkatraman, Senior Vice President – Global Bus, Ashok Leyland.
Moderator
V G Ramakrishnan, Managing Director, Avanteum Advisors
Responding to V G Ramakrishnan’s question on CV market having reached the 2011 level with 592,000 unit sales and good support from bus segments, Nalin Mehta expressed that commercial vehicle sales will grow as the (Indian) economy grows. “The big ticket growth in bus business,” he said, “came from STUs and translated into a growth of 153 per cent this year, statistically speaking.” Mehta emphasised on three factors – capitalising on JNNURM scheme, working on agendas using PPP approach, and getting independent operators to ply, that led to growth fuelled by STUs. Pointing at a shift taking place from LCVs to ICVs, he stated, “The delay or extension of bus body code implementation created an element of uncertainty. Manufacturers were not certain of how quickly it would be implemented, and if they will be ready. Bus body builder, a formidable part of the business today, were behind it. The Ministry of Road Transport & Highways (MoRTH) has been working towards a common mandate. If there is no clear legislation about sleeper bus code or about long haul buses, the growth volume is going to be more or less flat.”
Market shift
Diverting attention to trucks, A Sreerama Rao stated that the number of trucks required by customers has gone down on the basis of the on-road information his company has gathered over the last seven years. Expressing that a new model was always found to be more productive, Rao averred, “Transformation is also taking place in haulage trucks. A movement is taking place from double-axle trucks to multi-axle trucks. The (sales) numbers may not reveal the actual picture, the fact is, the industry is becoming more productive. It is moving towards higher productivity, and the horse power (on trucks offered) is going up across manufacturers.” Terming this as a positive trend, Rao mentioned that there was no need to worry if the absolute numbers were not growing.
Adding a new perspective, Rajinder Singh Sachdeva said that the CV industry is ready with BSIV emission compliant CVs. “Manufacturers are looking at common-rail technology, and the cost difference is hardly 10 per cent,” he said. Underlining the fact that there’s no choice there, Sachdeva said that 50 per cent of the Indian cities are already BSIV emission compliant. Some customers, he averred, were buying (BSIV compliant) vehicles whereas others were buying vehicles in cities that were still at the BSIII emission compliance stage. “In this quarter we are seeing pre-buying as CV buyers look at avoiding the cost difference they will have to account for from April 01, 2017. Post April 01, 2017, they will have no option. How GST will influence demand will depend on how the macro parameters pan out. The first quarter of FY2017-18 will be post pre-buying. It will bring into account, the fact that the CV industry never works on the right capacity,” he added. One remark of Sachdeva that caught the attention of the audience was the CV industry being either under capacity or over capacity. “Until March 31, 2017, we will be working under capacity. Demand is more than supply. From April 01, 2017, the manufacturing capacity will go up,” he said.
Factors that influence the CV industry
About factors influencing CV industry growth, Rajinder Singh Sachdeva mentioned that the first quarter of FY2017-18 will be confusing. The second quarter, he said, will have the GST cause confusion. “It is difficult to predict if anything like demonetisation or similar such initiative will arise in the third and fourth quarter,” he added. It is parameters like these, and not BSIV implementation, that will most impact, he stated. From the perspective of a oil manufacturer, Ravi Chawla remarked that they are working closely with OEMs, and that half the oils sold in India currently account for diesel engine oils. Mentioning that the industry here follows the European standards, Chawla said, “The arrival of larger trucks is driving a change in terms of the service intervals, and the way oil change happens. With GST, LCVs will play a larger role; they have different service requirements unlike the larger trucks that call for longer drain intervals. We will have to modify our approach,” he added.
“BSVI is a big challenge, and will call for lubricants to change,” said Chawla. He drew attention to BSIV oils already available in the market while stating that they are working closely with OEMs by keeping in mind the Indian requirements. “The need,” he mentioned, “will be to maintain the service standards such that the OEMs and truckers are able to fulfill their promises.” Touching upon SCR and AdBlue, Chawla expressed that the challenge was in the availability of AdBlue. It was necessary for the trucks to use it, he said. Stressing upon the use of AdBlue rather than water, Chawla explained that distribution, service and quality will matter the most. “That is something that we are working on as one of the two companies manufacturing AdBlue locally,” he added.
Segment shifts
Describing segment shifts as the writing on the wall for many years, Nalin Mehta expressed that there will be a need for transport were the country to produce goods. “A shift is taking place towards higher tonnage trucks; trucks that are bigger and more efficient,” he said. Stressing upon the need to calculate the number of trucks against billion-tonne kilometers, which is growing, Mehta averred, “Blips like pre-buying are occurring this year. With the impact of BSIV likely to be high, and compelling customers to pre-buy, the first quarter of FY2017-18 could well be expected to be dry.” “This would not stop the CV industry from growing however,” he added. Pointing towards better highways, rising consumption, growing economy, rising rural consumption and growing income levels, Mehta said, “With GST, the hub and spoke transportation model will assume a better form. As movement towards higher tonnage takes place, secondary transportation will shift to lower tonnage.” “With growth in the last few years not very encouraging, the co-relation between GDP and billion tonne kilometers, plotted over a long period of time, will be close to one,” he added. Stating that waterways and railways would compete with road transportation, Mehta mentioned that road transportation would continue to grow, and despite the blips and segment shifts.
Pointing at a clear shift to ICVs from medium-duty vehicles, T Venkatraman, on the subject of buses said that it was influenced by a rise in last mile connectivity and feeder operations. “People need to move. As cities grow, private operators and STUs, it is evident, are going for smaller buses. The ICV business for STUs has gone beyond 10 per cent in the last one year over the sub-five per cent earlier,” he added. Confident of the trend continuing, Venkatraman mentioned, “The need of the hour is to ensure interconnected roads and networks that would support last mile connectivity. There is a challenge of routing, and that of understanding the layouts.” Stressing on the need to work together, for the industry and the government, Venkatraman said that there is a need to build roads and networks with a common agenda; to invest in plans that are sustainable and fulfill the objectives. On the question of types of buses the industry should build, Venkatraman said, “The need is to work in the direction of building buses that address the issues of safety, passenger comfort, emissions, and an ability to get people to leave their cars behind.” Drawing attention to people travelling on bus rooftops, he mentioned that the bus body building industry and manufacturers have to set up a product that is relevant.
Digitisation and its influence on growth
Speaking about digitisation, and how it will influence CV industry growth, Rajinder Singh Sachdeva drew attention to the cost implications. “Safety aspects and digitisation will drive costs,” he said. Stating that the cost increase in the case of a six-cylinder BSVI engine will be to the tune of Rs.300,000, Sachdeva added, “It would involve setting up of a chemical factory on the vehicle.” Pointing at the challenge of putting up a chemical factory on smaller, intra-city CVs, Sachdeva explained that the cost increase will be close to the level of a hybrid solution. “A 34-seater electric bus costs Rs.1.5 crore, and a hybrid bus costs Rs.40 to Rs.50 lakh. The inclusion of BSVI technology will push costs closer to hybrid and electric levels,” he added. Explaining that the cost increase for a 8-litre engine will be Rs.400,000, Sachdeva emphasised that a significant shift was in progress. And, especially with regulatory factors like AC, truck code and trailer code accounted for. Sreerama Rao expressed that customers are ready to accept the significant shift in technology. “Volvo CV drivers have come to love the AMT technology introduced two years ago,” he added. Rao cited an example where customers are waiting to sit with them; to understand how the data can be taken off the truck using telematics, and how it will help them to get more out of their trucks. “The increase in features,” averred Rao, “is helping customers conduct their business efficiently.”
Manufacturing shift
Ruling out the challenge of manufacturing shift, Sreerama Rao said that there is a long way to go when it comes to understanding the business of the customer, and what will make value for him. “The interface between the industrial system and customers is where there is a scope for improvement,” he added. In respone to Ramakrishnan’s query on hybrids, Mehta averred that costs are going up, and the gap between conventionally powered CVs and hybrids is reducing. “To arrive at a time frame would be dangerous. The situation today is such that it will happen faster than anticipated. The progression is geometric. Little things are adding up to make a big chunk,” he mentioned. In view of the proliferation of hybrids and electrics, Chawla stated that the oil industry will have to adapt; that such vehicles also need lubrication. He added, “The trend (for hybrid and electric vehicles) is not going to be very high in the next 15-20 years it looks like. The space to charge, the cost of battery packs, battery space on the vehicle are some of the challenges that will need to be dealt with. Tests are on, and such vehicles will proliferate to an extent. It is a challenge, and we have to be ready.”
The future
In response to a question by Ramakrishnan on CV industry growth over the next four quarters, and the next two-to-three years, Ravi Chawla expressed that demonetisation may have led to a slight drop, consumption is up once again. “CV oil demand fell by 25 per cent and picked up momentum once again in January 2017,” he added. Defining the trajectory as positive, Chawla stated that segment shifts in CVs will take place, and the hub and spoke model will redefine itself. Expressed Sachdeva, that the industry overall will be one-to-two per cent plus this year as compared to the year before. “The first quarter of FY2017-18 will witness under buying as people wait for GST to play out. Second quarter will be lost in confusion. Even if the industry achieves a single digit growth will be good,” he added. Echoing Sachdeva’s sentiments, Venkatraman mentioned, “The momentum to make hybrid and electric CVs viable is necessary, and despite the presence of FAME scheme and getting potential players to set up protos.” According to Venkatraman, next year will see a rise in momentum of hybrid and electric CVs.” STUs, he said, are looking to retrofit. In his concluding remarks, Mehta stressed upon the continuation of movement to higher tonnage CVs, and towards lower tonne per kilometer in terms of cost. “If GST would lead to a postponement in purchase,” he said, “the good part is the scrappage policy, which will kick off a different ball game in terms of replacement demand.” “Growth in ICVs and tractor-trailers will follow a clear distinction between highway movement and secondary transportation. Consolidation in freight will happen. SCVs will play a tertiary role as rural demand goes up. There will be a movement toward higher tonnage in every CV segment,” signed off Mehta.
