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Skidding consumer demand has forced two-wheeler majors to withdraw dealer discounts to shore up profit margins in a highly distressed market. For the first time in several years, motorcycle sales, which recorded double-digit growth, have dropped 10% in the past few months with overall two-wheeler sales falling 8-9%.
The key reason for the slump is spiralling interest rates on loans which have soared from 8-9% to 14-15%. This has squeezed the consumer’s ability to borrow. More than 70% of two-wheeler purchases are through loans, with the rural market accounting for more than half the two-wheeler sales. Consumers are shying away from expensive loans and putting off purchases, top industry officials said.
Manufacturers used to offer dealers discounts of Rs 1,500-2,000 per model, besides freebies such as gold coins. This has stopped, along with the 0% finance schemes. Motorcycles account for 85% of two-wheeler sales in the country with the sub-125cc contributing 75% of sales in the segment.
The industry grew at over 17% every year, with sales doubling between 2002 and 2006. “We expect demand to remain sluggish for the next couple of months and growth may pick up marginally during the last two quarters of the year,†said Bajaj Auto VP (marketing and sales -two-wheelers) S Sridhar.
Lenders are also demanding a 30% down payment from consumers compared to 10% a few months ago. “The absence of easy finance has reduced liquidity in the market and impacted sales volumes across two-wheeler companies,†said TVS Motors’ VP (marketing) R Chandramouli.
Worried dealers say financiers such as ICICI have tightened disbursements and are taking a longer time to approve loans. “Demand has been hit because consumers are reluctant to take high-cost loans. As our cost of funds go up, retail loans have also got expensive. Why should we stop disbursements? In fact, we are giving pre-approved loans to existing ICICI customers. We love the retail business,†said ICICI Bank executive director V Vaidyanathan.
Raw material costs are also up by up to 15%, putting pressure on margins. Bajaj Auto hiked prices by Rs 500-1,000 recently and others are likely to follow suit.
Over the past few months, two-wheeler majors have drastically cut down on billing stocks to dealers and reduced inventory considerably. Till recently, dealers were saddled with more than five weeks of stocks compared with the usual three weeks.
Motorcycles sales have been hit more than scooters, which is turning into an urban phenomenon, analysts said. “Manufacturers are targeting urban consumers by relaunching scooters from fuddy-duddy products in the rural markets to high-end gearless products that enable better mobility in cities,†said Kinetic Motors MD Sulajja Motwani.
Following the drop in sales volume, companies feel cost-cutting, marginal price increases, launch of new products and upgrade of existing products is the only way to tide through a difficult market.
The past few months have seen the country’s largest two-wheeler maker Hero Honda revamp almost 95% of its existing product range except the Karisma. TVS has upgraded its premium bike Apache and introduced a mid-priced bike (replacing Victor) while Bajaj upgraded Pulsar and Discover and plans to launch an upgraded 100cc bike in September 2008. Bajaj Auto has been consciously limiting the number of dealerships.
“We currently have 500 dealerships and instead of increasing them, we increased the number of service centres this year,†Mr Sridhar said.
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