A look at the commercial vehicles segment, what makes it click and the financial challenges that it faces

The commercial vehicle market in India has traditionally been divided into approximately three wide segments, for purposes of technical demand-supply equations, as well as financial segregations.
 
a) Large institutional customers: This comprises State Transport Undertakings and other government, defence and paramilitary, large private customers, the mining industry and similar sectors. Securing payments and organising finance here is usually not an issue for the manufacturer, and where there are issues, there are always time-tested solutions.

b) Smaller corporate and regularised sector customers: Schools, colleges, hospitals, factories, fleet owner/operators come under this segment. Securing finance is usually not an issue for these customers, too, and the manufacturer therefore secures his fiscals through established routes involving banks or non-banking financial institutions.

c) Single vehicle owning/operating: This is probably the biggest segment for the manufacturer, varying with end usage, and barring the cash-down type of customer, financing a vehicle is extremely difficult for most of the others. It usually involves a host of intermediaries, which increases transactional costs, and reduces efficiencies for the end customer.
 
In addition, for quite some time now, there is also the export market-which does in some ways influence what the domestic market will eventually also get, but which does not impact the financing part of the domestic market. Your correspondent has worked on ships which carried Tata trucks and buses for export way back in the seventies, and even then, the "export" models had aspects that were simply not found in vehicles for the "domestic" market-but were then seen on Indian roads a few years later. Air-conditioning, for example, in buses and power steering in trucks.
 
The third category, the single vehicle owner/operator, is perceived to currently be the largest by size.  Although data is not available, this category is supposed to be between one-third and two-thirds of the overall market, depending on kind of vehicle and the usage it is put to. This is very important-the kind of usage determines many aspects of the ownership and resale experience-thus impacting, also, the financing part. In the three-wheeler commercial  vehicle segment, for example, it should be almost 100% single vehicle owner/operator, but in actual fact there are many single entities who "control" large fleets in their spheres of influence, so the financing and re-financing part is skewed accordingly-set absolutely against the single owner/operator.
 
This segment is also, because of the way things work, the worst off as far as anything on the roads is concerned. At all stages, the decks are loaded against the aspirational single vehicle initiate, who first has to be a cleaner, then a conductor and finally a driver before he can hope to be an owner-operator. The inertia levels stacked against him and the totally opaque system that works against them are usually impossible to crack. Incidentally, this is also the way things work in India in three industries-films and entertainment, real estate and construction, as well as road transport. The inertia levels that exist make it very difficult for new entrants to break the vicious cycle of financier, re-financier and others, all of whom operate with the strength of the system, aka "the government" behind them.
 
This, however, appears to be set to change. A quiet revolution has been brewing in the small commercial vehicle segment for the past few years, and is set to explode, if predictions are to be believed. However, finance remains the biggest stumbling block, and the interest rates are terribly stacked against those trying to get in.
 
So the next obvious question is this-why do people wish to get into this line? The answer is simple, the alternate option is to go back to pushing a cycle rickshaw, or worse, starve in a village somewhere, working as bonded slaves if nothing else.

Ask any ex-small village driver in the public transport industry in any city on why he left his village or small town and the answer is always the same, first it is "there was nothing else to do", followed by "to escape the bandhua (bonded labour) system".
 
So there I am, young, male, unmarried, maybe with an education but with hardly any literacy, running away from whatever fate had in store for me, in the big city, with a driving licence for commercial vehicles secured from the Regional Transport Office (RTO) in the jurisdiction by whatever means possible, sleeping under the stars or in a slum somewhere in an unrecognised settlement, dreaming of buying a small truck, or if nothing else, just an auto-rickshaw. And then I go to the dealer, new or second-hand commercial vehicles, and ask for a loan to buy my own little yellow-plate wonder. That's where my real education begins.
 
As stated before, there is a small commercial vehicle revolution about to sweep the country, like no other before, and it will probably impact the sub-three-tonne payload segment the most. And the way things are going, the day and age of the single owner/operator is around the corner too. The question is-will the financing products and services be available, ready, for this growth?
 
Chances are, from all appearances, that change is in the air. And where there is change, there will be resistance.
 
(This is the second part of a two-part series on commercial vehicles)