Rising interest rates are beginning to hurt truck sales. Dealers, financiers and fleet operators are all reporting a slowdown in sales and a fall in enquiries in the last month and more.

“We sell about 1,400 trucks a month. But the number of enquiries and demand seem to have dipped in the last fortnight. Dealers in Madhya Pradesh say the same thing,” said a Tata Motors dealer in Chennai.

The slowdown is best exemplified in the lack of any buying interest in spite of Tata Motors announcing that it would hike prices of vehicles by 2.5 per cent from July 1, he said.

Mr S. M. Bafna, another Tata Motors dealer in Chennai, said the hike in interest rate has made truck owners adopt a ‘wait and watch' approach and defer purchases.

Last week, Sundaram Finance Ltd, a leading truck financier, had sounded the first warning of a falling sales trend. “Automotive industry is showing the first signs of a slowdown, coming off two successive years of high growth,” said Mr T. T.Srinivasaraghavan, Managing Director.

Ashok Leyland, the country's second largest truck manufacturer, confirmed the trend. “Commercial vehicle sales growth has been less than 6 per cent in the last two months compared to the previous period,” Mr K. Sridharan, Chief Financial Officer, told Business Line .

Sales are typically sluggish in the first quarter but offtake of commercial vehicles in April-May 2010 had grown by 61 per cent along with a doubling of heavy truck sales, according to data from industry body SIAM. Ashok Leyland has itself reported a 17 per cent drop in heavy truck sales in April-May 2011 while Tata Motors' sales grew by 9 per cent.

“Demand has been lower as commercial vehicle buyers typically borrow at fixed interest rates. Even an increase of one percentage point matters to them and buyers typically tend to postpone buying decisions hoping for a dip, said Mr R.Sridhar, Managing Director, Shriram Transport Finance, the largest NBFC in the truck-financing business.

Meanwhile, fleet operators confirm that they are staying away from the market. According to Mr Mohan, Joint Secretary of the State Lorry Owners' Federation and owner of a fleet of 25 trucks in Namakkal, the hub of the trucking industry in the South, there has been a 30 per cent drop in sale of trucks in the last two-three months. “Every month 100-110 trucks are sold in this small town in southern Tamil Nadu but the volume has dropped to nearly 75 due to higher rate of interest,” he said.

According to Mr Mohan, Sundaram Finance has increased the rate of interest by 1-1.5 percentage points to 12 per cent. This means, the equated monthly instalment (EMI) has increased by Rs 1,000-1,500. A truck costs nearly Rs 14 lakh for which the EMI used to be around Rs 40,000, and will now increase by Rs 1,500, he said.

Mr Deepak Ramasamy of Deepak Agencies, Chennai, which has a fleet of 209 commercial vehicles, says that in the present condition, “I would postpone my (vehicle) buying. Due to higher rate of interest the additional financial outgo will be nearly Rs 2 lakh for very Rs 1 crore invested on vehicles,” he said.

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