#InTimesofCorona – Pre-owned trucks in top gear
The on-going pandemic has put the used truck market in spotlight, a significant and positive development for commercial vehicles market in the country.
The festive season is here! This period is always an exciting moment for the domestic CV industry, as over 25-30 percent of overall annual sales on an average is attributed to these two-odd months, which also coincides with the post-monsoon bounty. But hey, this is 2020! This year is all different, thanks to the pandemic. There has been a sequential increase in sales month-on-month since the April, but low base figures and lack of sustainable demand across the important product segments including MHCVs and buses are the real bummers. So, we can expect some improvement in the demand scenario to keep the CV industry crawl away from negative growth, but this festive season is unlikely to be a game changer in any respect. For that matter, even 2019 festive season lacked real festivity with regard to CV sales, as our hopes on ‘pre-buying’ was so high without taking into account the subdued demand situation that was looming over the economy at large.
However, we must remember that nature abhors any vacuum. The void created by poor vehicle sales this time is getting filled with the sales of pre-owned commercial vehicles, especially trucks. This may not seem to be good news for the organized players in the CV industry including OEMs and dealerships, but even those players have left no stone unturned in cashing the newly emerging opportunity since the pandemic. Even in developed CV markets of Europe and North America, a healthy pre-owned vehicle segment is seen as a positive trend that complements the growth of new vehicles and that of larger vehicle market in general. However, in India, it is a space of sheer neglect, and is often seen as antithetic to the growth of new vehicles sales in the market.
The decision to buy used trucks is as ‘smart’ a decision as buying a new one, thanks to the upfront cost advantages and value-for-money propositions that they offer to its buyers. Further, the logic of supply-demand cycle hold sway in vehicle market, as a developed used vehicle market will encourage existing users to replace their fleets at fair rates if they find value in doing so, thereby kindling the demand for new vehicles. Ultimately, it is the economics and operational requirements of the buyer that matters, and a mature vehicle market must give enough options to buyers of all kind. This realization is totally absent in our country, despite being one of the largest markets of pre-owned trucks and buses in the world in terms of vehicle numbers, and most of the dealings happen over unorganized market places that includes local brokers, fleet agents, and informal bidding events or platforms.
The on-going pandemic has put the used truck market in spotlight. An upward trend in realization of used CVs was first felt in 2018 and greatly improved in 2019, predominantly in the organized second-hand market. But since the easing of lockdown measures in May this year, the unorganized sector is also witnessing huge momentum, which is more than five times bigger in terms of volume. Uncertainties out of economic slowdown and lockdown impacts have left the market with a higher supply of used trucks since June, while expanding further in the month of October due to the end of loan moratorium extension for businesses. On the other hand, the demand for pre-owned trucks across the country also remain high like never before – about 80 percent higher than pre-covid levels – thanks to gradual increase in demand for trucks in certain specific applications such as construction, e-commerce, and parcel logistics.
Further, financial distress and troubled cash flow with buyers make them lean towards the purchase of pre-owned trucks. Transporters are wary of investing in new trucks owing to higher financial risks at times when the logistics demand continues to be subdued and freight rates remain low due to over-capacity. Adding to this is the steeper pricing of new BS-VI trucks, along with higher maintenance and operational costs – the worst nightmare for transporters at this time. This largely explains the upward moving trend in the selling prices of second-hand trucks and SCVs, with an increase of 5-10 percent in the last two months moving into the festive period. Construction tippers, multi-axle rigid haulers, pick-up and mini-trucks – BS-IV models in particular – are selling like hot cakes, while the prices remain more or less subdued for tractor-trailers in the used truck market. Exchange of buses remains absolutely nil, while small and intermediate passenger commercial vehicles are witnessing some traction, but far below pre-covid levels.
Thus, the real festivity this year in the vehicle market largely lies with the sales of pre-owned vehicles. Analysts forecast a further expansion of this segment in the coming months as well, especially in organized market places and online bidding platforms. This is a huge opportunity for the domestic pre-owned vehicle market to develop and organize itself into a reckoning force in the coming years.
I’d love to know what you think, email your views to dhiyanesh@motorindiaonline.in