The transition to the cleaner emissions regime, Bharat Stage VI (BS-VI), will not be a smooth ride for commercial vehicles, according to Tata Motors’ managing director and chief executive officer Guenter Butschek.
"As the auto industry prepares to transition to the BS-VI emissions standards by April 1, 2020, the big challenge for the commercial vehicles segment will be to calibrate production and wholesale stock against retail demand, as in commercial vehicles (CVs) particularly it is a highly complex affair," Butschek told reporters at a press meet in Mumbai.
Tata Motors reported two consecutive months of higher medium and heavy commercial vehicles (M&HCV) sales in December, and an increase in enquiries from fleet operators, expressing optimism for future volumes and realisation.
"We have seen a solid level of enquiries in MHCVs in December. Our retail numbers were significantly higher than wholesale, indicating a good conversion rate," Butschek said.
"Across the board – with fleet operators and retail customers – we have seen an increase in interest which already started in the month of November, but December was even better. If I would not put too much weight on the month of December because it is the transition of the calendar year, and would take this as a continuation of the November trend, we have good reason to be optimistic that the trend is going to continue and the fourth quarter will give us an uptick of volume," he added.
"The volumes are nowhere close to what we initially expected for Q4, but it is the starting point of the correction in the overall decline in the market. In the meantime, our supply and ordering management system is a daily affair to ensure we get to mission zero in the end of the fiscal year.” Butschek said, explaining that the company is aiming to gradually phase out BS-IV stock to zero before the deadline.
"We have started for the first time to leverage the stock across territories and regions. For two reasons, one is if the market shrinks, the TIV (total industry volume is shrinking). We would normally expect, in the months of September-October, volumes in the vicinity of 25,000-30,000 units in the MHCV segment. This year in these two months, we did not even cross ten thousand," he added.
Butschek said the market was at a third of the volume than what is normally expected of these months, and considering the lacklustre demand, the competition is very severe and stiff, "There is a very severe, stiff competition in the market where each and every deal counts, but you don’t try to necessarily cut each and every deal."
There has been an unprecedented level of discounts to push retail offtake in MHCVs, but Butschek says that they are now stabilising as demand shows signs of picking up.
"In the month of December, there was stronger demand, a stabilisation as far as transaction pricing is concerned. It wasn’t a month where things escalated, but we saw stability. Unfortunately, stability on a lower level, or from a discount point of view on a higher level, than what was the case a year ago," Butschek said in response to a question from CNBC-TV18.
"The biggest challenge will be from April month, where the customer doesn’t compare list price but will compare the transaction price of BS-IV after discount with a list price of BS-VI, and the resale value etc. This is where we really need to invest a lot in customer relationship and how we manage the transition. It is a confidence question: We need to bring the proof that the BS-VI solution offers an advantage as far as TCO (total cost of ownership) is concerned. This requires a major intervention and a different approach," he said."The challenge right now is to calibrate production, wholesale stock against retail demand, in CVs particularly it is a highly complex affair," Butschek concluded.