How the game may be changing for LCV players

The Indian light commercial vehicle (LCV) market has faced rough weather over the past year or so: subdued demand has caused sales to slide. Tata Motors, which has dominated the market for long, faces an additional challenge: the rapid strides made by Mahindra & Mahindra.

So much so that Mahindra & Mahindra has managed to overtake Tata Motors and capture the number one position (in volumes) this year, according to data from the Society of Indian Automobile Manufacturers, the apex body of domestic automobile industry (see Leaping ahead). While the LCV market has shrunk over five per cent so far this year (April-October), Mahindra & Mahindra has been able to gain market share.

The LCV market, while smaller when compared to the medium and heavy commercial vehicles in terms of value, is significant in volume. A total of 382,206 LCVs were sold in the country in 2014-15. These small trucks, because of their easy maneuverability, are ideal for intra-city transport of goods.

However, it is a segment that is highly sensitive to price as buyers, mostly individuals, need to make a business out of it. In a large number of the cases, the owner also drives the LCV. Most of these mini trucks are bought on installments. Thanks to the subdued demand, there have been serious defaults in recent times, and this has made banks and non-bank finance companies cautious: they have chosen to go slow on fresh LCV loans. This, in turn, has hurt the industry badly.

Senior Mahindra & Mahindra executives say they have been able to buck the trend because of the success of the Jeeto, a mini truck that was launched in June. "It has helped us gain market share," says Mahindra & Mahindra President & Chief Executive (automotive) Pravin Shah. (The company also launched the Supro Maxitruck, an LCV that can be used to carry passengers, in October).

The company claims that customers have appreciated the better value proposition of the Jeeto: higher fuel efficiency and lower operating costs coupled with competitive pricing. This has helped in increasing the market share, claims Shah. The numbers, month after month, are reflecting the growing popularity of Mahindra & Mahindra's LCVs, he says.

On a slide

For Tata Motors, LCV volumes were down 29 per cent in April-November. However, it posted 15 per cent growth in the medium and heavy commercial vehicle segment during the same period. The overall M&HCV segment has seen growth this year, which seems to be driven by strong replacement demand. Mahindra & Mahindra is not a significant player in this space and sells a fraction of what Tata Motors does, but it has successfully grown volumes 62 per cent till November.

A Tata Motors spokesperson says the decline in its LCV market share needs to be seen over a longer period of time. "Peak sales of the very successful Tata Ace family in FY13 and first half of FY14 were followed by a very severe recession, resulting in a lot of idle capacity," he says. "This situation is easing. As this segment starts recovering, our overall share will also move up."

LCVs are used to transport goods as well as passengers. Even as Tata Motors has managed to marginally grow its volume in the passenger LCV segment, its goods LCV volumes have come down 22 per cent year on year in the April to October period.

The company says the market has seen the emergence of newer segments where it was not ready with a product line up. "We have seen new segments being created that have impacted the market dynamics as we did not have products in those segments. However, we have begun to see a good response to our newer products that address these segments," the Tata Motors spokesperson adds.

In a flux

Wilfried Aulbur, managing partner of Roland Berger Strategy Consultants, says a company's market share in LCVs depends on a number of factors. "These are adequacy of the product portfolio, pricing and availability of finance. The market has seen a shift towards pick-up vehicles and this is reflected in market share," he says.

Tata Motors launched the Ace Mega, a small pick-up with rated payload of 1 tonne in August end. "This is one of our key interventions in the market and we have seen our market share increase 5 per cent in the first month. We recently launched the new Ultra range of modern LCVs, and on the public transport side we will soon launch the Magic Mantra. With the strong Ace brand equity and our plans to continue to invest into new products in these segments, we expect to regain momentum," the spokesperson says.

The Ace family of products, popularly known as chhota hathi (baby elephant), has seen cumulative sales of over 1.5 million units since its launch in 2005.

But the competition is not complacent either. Shah says Mahindra & Mahindra will continue to roll out new products and upgrade the existing offering to keep up with the customers' evolving needs. A boom in e-commerce, retail and increase in urbanisation coupled with easy finance options will improve the demand for LCVs, hopes Shah.

The LCV market is set to see more action and competition in the coming months. The market leader in passenger vehicles, Maruti Suzuki, is preparing to enter the LCV segment in 2016. Most of the components for Maruti's LCV will be locally sourced and this is expected to give the company an advantage when it comes to pricing the vehicle. Besides, the company will also leverage its brand equity as a maker of highly fuel efficient vehicles to make inroads.

Aulbur says the Indian market for LCVs is attractive and can be profitable for players who can exploit frugal engineering in the best manner. "We are seeing challenges in consumption growth that can drive last mile connectivity and boost LCV sales. The situation will improve but there is an uncertainty as of now," says he.

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