The continuing slump in demand for commercial vehicles (CVs) is prompting top players Tata Motors and Ashok Leyland to temporarily shut their factories at Pantnagar, Uttarakhand, to avoid inventory build-up.

“The volume demand in the CV sector has witnessed a drop. Hence, for optimum line utilisation and effective productivity, it has been decided to observe block closure for two days — July 13 and July 22,” said a Tata Motors notification to its employees.

Similarly, Ashok Leyland will close its Pantnagar plant for 12 working days from July 11 to 24, the company said in a staff circular. The Chennai-headquartered firm had closed its factory for about a week in June stating that it was aligning production with sales requirements.

Multiple reasons

Along with every other vehicle category, the CV segment has also been battling poor demand. Sales slowed in the second half of FY19 due to multiple factors that have continued into the current fiscal as well.

Manufacturing output and consumption are facing a slowdown, and as also the execution of infrastructure projects. New axle-load norms implemented in September 2018 have led to a 15-20 per cent increase in capacity overnight.

Also, fleet operators are postponing purchases given the poor cargo availability and falling freight rates impacting their viability. NBFCs have been facing liquidity constraints and that has affected vehicle financing; they fund more than half the new truck sales.

In June, overall CV sales were down 12 per cent at 70,771 units. Medium and heavy duty trucks reported a 19 per cent decline at 21,512 units. For Q1 of this fiscal, overall CV volumes fell 10 per cent at 2.08 lakh units.

The medium and heavy commercial vehicle segment bore the brunt of sluggish demand with the sales volume plunging 19 per cent at about 64,000 units.

In this segment, Ashok Leyland’s June sales fell 23 per cent at 8,123 units, while Tata Motors’ volumes were down 19 per cent at 9,358 units.

As a consequence, companies are resorting to production cuts and temporary plant shutdowns to align production with demand.