Tata Motors reducing discounts on trucks to improve margins: Report

Tata Motors sells over 50 per cent of all the medium and heavy trucks in the country yet its margins have remained thin

Indian commercial vehicle maker Tata Motors has started reducing discounts it offers on trucks to protect the margins, a report by The Economic Times said. With fewer discounts, the company has kept the maximum retail price constant, leading to an increase in the effective market operating price. 

"From September onwards, we have taken a decisive step. We are moving from a push system to a pull system," Girish Wagh, executive director at Tata Motors, told ET. "The journey has not been easy. The customer's mindset has become like that. We are spending time on communication with customers, financiers and channel partners."

This company sells over 50 per cent of all the medium and heavy trucks in the country yet its margins have remained thin, the report added. In 2022, the company brought Mckinsey & Co on board to restructure its commercial vehicle business for better profitability.

The practice of heavy discounting in the medium and heavy CV industry started with the competition between the companies to get a bigger share of the market. Tata Motors said it was keen to stop getting into the "discount war". 

The company's top rival, Ashok Leyland, on the other hand, has maintained its discounts.

"For Ashok Leyland products, the level of discounts has been reduced consistently over the last five quarters which has resulted in better realisations over this period. This has resulted in better controls on margins despite the extended impact of inflated commodity prices in the first half of last calendar year," Sanjeev Kumar, president and head of MHCV business, Ashok Leyland, told ET.

Ashok Leyland also revealed six new "alternative energy" products at the Auto Expo 2023. 

The industry, on the other hand, might continue to see muted demand this year. According to rating agency Icra, the domestic automotive industry is expected to grow at high single-digit levels in 2023-24. The demand for the passenger vehicles segment is expected to grow at 6-9 per cent, commercial vehicles by 7-10 per cent, two-wheelers by 6-9 per cent and tractors by 4-6 per cent in FY24.

This is compared to a projected 21-24 per cent growth for passenger vehicles, 18-20 per cent for commercial vehicles, 9-12 per cent for two-wheelers and 0-4 per cent for tractors in FY23.