By Ruma Dubey

When the mood is good, even things which are looking bad, tend to either look good or gets completely ignored. And when the moods are bad, well, nothing good gets even registered. Depending on the level of pessimism, even good gets construed as bad. Such is the state of mind!

The exuberant moods on the street ignored the fact that Tata Motors had shut down its plant for 3 days- November 29 to December 1. This was not for maintenance but as the company has stated, was ‘an aggressive effort to align production with demand’. In simple language this means the company wanted to clear the inventory without piling up more production. And when does inventory pile up? Naturally, when the demand is down.

This closure was at its Jamshedpur plant and the pile up of inventory is of its heavy and medium commercial vehicles (H&MCVs).  Sales number of October had indicated that things were getting sticky as Tata Motor’s overall M&HCV segment had shown a 23% (YoY) slump.   It takes a certain amount of courage to announce closure to clear inventory as it ‘officially’ shows that things are not good and no company wants to proclaim that. But then again, when forced to the corner, it is better to declare this now so that we are prepared for the numbers when they come at end of Q3.

The other big H&MCV maker is Ashok Leyland and though it has not announced any plant closure, its story is not too different. Its sales in this category fell 13% (YoY).

The overall sector in current H1 has shown a slump of 14% and this fits right in with the IIP numbers which have been showing us month after month that industrial activity is down. Trucks (H&MCVs) are the wheels of the nation and when they move, it means goods are moving on the back of robust demand and industrial activity. But when there is a slump like now, it means there is a slowdown. This closure by Tata Motors goes on to reiterate what the IIP numbers have been showing all along. This closure has happened in Q3 and that means, when festive demand was actually expected to boost demand and sales, it did not really happen which is why the company was left with no option but to cut production to reduce inventory pile up. Now, this does not augur well.

We had seen a fall in sale of trucks in 2008-09, which witnessed a fall of 38.69% and this was due to the fall in manufacturing activity then, like now. And at that time, replacement cycle of truckers operating on trunk routes was extended to 6-7 years, ruling out further fleet expansion. But there was a bounce back in 2009-10. And that is where the difference lies today. Then, there was the promise of the stimulus spiking demand but today, there is no stimulus as such. Interest rates are high. Demand for trucks is directly dependent on economic activity and we can say when demand for trucks shows a pick-up, it means economic activity is picking up.

Maybe we will start seeing a recovery once the interest rate cycle starts coming down but that is expected to happen only either in early Q4 of early Q1FY14. Sentiments are optimistic today but that needs to get translated to reality; once the Govt moves things in the current Parliament session, only then can we see manufacturing activity also picking up. Mining is one of the biggest users of H&MCVs and that sector has been mired in controversy for some time now. Monsoon usually means whatever little activity was there, also closes down. So maybe that activity will see some pick up in Q3. 

There are too many ‘maybes’ here because there is so much uncertainty all around. And one cannot day for certain, at this juncture that truck sales will pick up in coming months. But what we can say with certainty is that for now the road looks lumpy and strewn with potholes for trucks, making the progress painfully slow.  Will the Govt signal, “Horn OK Please” and get the trucks moving?