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OPINION * India - Commercial vehicles on the kerb
To get an insight into current problems in the commercial vehicles industry, one need not look at interest rates and the global financial crisis, but rather seek answers in the very nature of how road transport industry is organised in the country...
New Delhi,India -The Hindu Business Line, by D. Sampathkumar -16 Nov 2008: -- With 40 per cent production cutbacks and four-day work weeks, the commercial vehicles industry is making news in ways that go beyond traditional assessments such as ‘global slowdown’ and ‘financial turmoil’. Equally, the traditional explanation, that the industry is ‘cyclical’ and that it just now happens to be on the downward slope of a boom-bust cycle, isn’t very satisfactory either... Incidentally, no broking house research report on a company in the commercial vehicle industry is complete without a reference to this notion of ‘cyclicality’. However this begs the question: What is it that makes this industry a cyclical one unlike, say, the market for toothpastes?... Indeed, so fragmented is the trucking industry structure that it is the economists’ ultimate dream of ‘perfect competition’. Such a structure affects the fortunes of the commercial vehicle industry in other ways as well. Every truck operator is basing his investment decisions not on what others are deciding about augmenting capacities under their control, but rather on the basis of where he himself would like to be in the future... A compact ownership structure involving relatively fewer but large fleet operators in the trucking industry is conducive for more rational exercise in capacity planning. Importantly, it allows for decisions by individual enterprises to factor in what others are planning in their own capacity creation calculations... But the disparate market structure of the trucking industry does not allow for orderly conditions to prevail. The market forces eventually sort out these investment excesses through business failures and subsequent economic growth soaking up excess capacities, and so on... In the short run it ends up sending distorted signals of potential demand to commercial vehicles... (Photo by Nissar Ahmad - The structure of the industry is geared to low margins, to the detriment of the fortunes of the commercial vehicles manufacturers)Labels: opinions
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