According to a report by The Economic Times, Tata Motors, a leading Indian manufacturer of commercial vehicles, has begun to decrease the incentives it provides on its trucks in order to maintain profit margins. As a result of this decrease in discounts, the company has been able to maintain a consistent maximum retail price, resulting in a rise in the overall market price.
Tata Motors is shifting its approach from a sales strategy focused on “pushing” vehicles to a strategy focused on “pulling” customers to purchase, according to Girish Wagh, an executive director at the company. Wagh said that this transition has been challenging and that the company is working to communicate the reasoning behind the change to its customers, financiers, and dealers.
According to a report, despite being a leading seller of medium and heavy trucks in the country, Tata Motors has struggled to maintain strong profit margins. To address this issue, the company brought on McKinsey & Co in 2022 to help restructure its commercial vehicle business with the goal of improving profitability.
The practice of offering heavy discounts in the medium and heavy commercial vehicle industry began as a way for companies to gain a larger market share. However, Tata Motors has stated that they are looking to avoid getting caught up in the “discount war” and are instead focusing on maintaining their profit margins.
While Tata Motors is reducing its discounts to protect its profit margins, the company’s main competitor, Ashok Leyland, has reportedly decided to maintain its discounts.
Ashok Leyland, a rival company of Tata Motors, has stated that over the last five quarters, it has consistently reduced its discounts, resulting in better revenue and better control of their margins. This was achieved despite the impact of rising commodity prices in the first half of last year. According to Sanjeev Kumar, President and Head of MHCV business at Ashok Leyland, this strategy has been effective for them.
In addition to maintaining its discounts, Ashok Leyland also announced the launch of six new “alternative energy” products at the Auto Expo 2023. The company is focusing on innovative and sustainable solutions as part of its strategy to stay competitive in the market
Despite the efforts of companies like Ashok Leyland and Tata Motors, the overall demand for commercial vehicles in India is expected to remain subdued in 2023. According to rating agency Icra, the domestic automotive industry is forecasted to experience growth at high single-digit levels in 2023-24. Specifically, demand for passenger vehicles is expected to grow at 6-9%, commercial vehicles by 7-10%, two-wheelers by 6-9%, and tractors by 4-6% in the fiscal year of 2024.
The growth projections for the different segments of the automotive industry in India for the fiscal year 2023, are expected to be significantly higher than the projections for the fiscal year 2024. Specifically, the projected growth rate for passenger vehicles is 21-24%, for commercial vehicles 18-20%, for two-wheelers 9-12%, and for tractors 0-4% in FY23. This indicates that the growth rate is expected to slow down in the next financial year compared to the current year.