Two-wheelers market to stabilise by June 2020

The total sales in 2018 accounted to 21.6 million, improving by 8.5 per cent from the previous year and hitting the new all time record. Post December, India’s two-wheeler sales suffered and are negative since last year due various factors affecting the market due to the overall slowdown in the automotive segments. This article takes a closer look at the current market condition and its way ahead.

India has recently overtaken China to become world’s largest two-wheeler market, mainly due to faster rate at which India’s two-wheeler market is growing as compared to China, which is witnessing a de-growth. According to an HDFC bank report, the two-wheeler sales in India have grown at a CAGR of eight per cent during 2014-18 with 2018 showed 14.8 per cent year-on-year growth. The scooter segment grew by 19.9 per cent and motorcycle segment grew by 13.7 per cent. The faster growth in two-wheeler sales is mainly due to rising income levels, growing infrastructure in rural areas and rising trend of scooterisation (especially among women commuters). However, despite India being the world’s largest two-wheeler market, India still has very low penetration level of two wheelers. In India, about 102 out of 1000 people have two-wheelers, which is less than half of penetration levels in Indonesia (281) and Thailand (291).

As per HeroMoto Corp report, two-wheeler penetration level in Urban India is close to 40-45 per cent while in rural India it is close to 20-25 per cent resulting in to a national average of 30-40 per cent. Growing urbanisation, rising participation of women workforce and improvement in road connectivity are some key factors to drive improvement in penetration levels for two-wheelers. As a result, the entire values chain in two-wheelers starting from original equipment manufacturers (OEMs) like Bajaj Auto to component supplier like Minda Industries, Apollo Tyres, Exide Industries etc is likely to witness steady growth in coming times.

Rural India has been one of the main sources of consumption in India, mainly due to a large population residing in this area. In two-wheeler segment, motorcycle sales are predominantly dependent on rural India, as people living in rural area prefer motorcycle to scooters given its sturdy structure, superior performance, and lower costs, especially in the economy segments. With government keen on improving the standard of living of rural population, in particularly of farmers, it has been announcing various schemes and increasing budget allocation, which is targeted towards increasing the rural income levels. In addition to rising penetration level of two-wheelers and rising income levels driving the sales growth of motorcycle companies particularly strong in entry-level motorcycle segment, improving road connectivity is also resulting in driving the demand for two-wheelers in rural India. With the government’s push for improvement in rural road infrastructure and improvement in last mile connectivity coupled with two-wheeler OEMs focusing on grabbing market share, the long-term growth prospects for two-wheeler industry looks bright.

According to FADA observations, “Rural India’s demand is price sensitive. It will be crucial to see how the two-wheeler sales reflect when BS VI vehicles will initially be launched with high price points. Generally price points stabilise after three months.”

Regulations and growth

Indian two-wheeler industry has been experiencing ups and down in recent past, mainly due to changes in regulatory requirements. In March 2017, the Supreme Court ruled to stop selling vehicles, which are not compliant with BS-IV emission standards after 31 March 2017 that coupled with GST implementation related hiccups led to slowdown in demand for two wheelers post March 2017. In order to reduce the old inventory in the system, companies resorted to heavy discounts, which affected their profitability. As the hiccups related to GST started subsiding, two-wheeler industry started to see strong growth momentum with monthly sales growing over 15 per cent for six consecutive months. However, two-wheeler sales once again hit the slow lane, as there was a mandate that third-party insurance to be increased to five years and premium to be collected upfront for two-wheelers. In addition to this, the Insurance Regulatory and Development Authority of India (IRDAI) in a circular dated September 20, 2018 had made mandatory increase in the compulsory personal accident cover for two-wheelers from Rs 0.1 mn to Rs 1.5 mn. As per media report, these two changes led to over three fold jump in insurance cost for two wheelers. However, effective from January 1, 2019, IRDAI has unbundled the compulsory personal accident (CPA) cover and permitted the issuance of a stand-alone policies, which is likely to reduce the cost of ownership of a vehicle. The change in insurance norms, which was unknown to everyone, has led to sharp deceleration in two-wheeler sales growth in recent times. However, it would be important to monitor, how trend shapes up post the relief announced by IRDAI.

Current scenario

In the January-September period, India clocked 28.7 million two-wheelers sales, whereas China sold 24.72 million units during the same period.

Hero MotoCorp and Honda Motorcycle and Scooter India (HMSI), the two leading two-wheeler manufacturers controlling 63 per cent of the domestic two-wheeler market, had to undertake unscheduled factory shutdowns to avoid further piling up of inventory with dealers.

Hero’s sales during April-September fell 17 per cent to 3.44 million units while that of Honda declined sharper by 19 per cent, shows SIAM data.

With Indian two-wheeler companies getting ready to roll out next generation Bharat Stage VI (BS VI) grade motorcycles and scooters in a few months, prices are expected to rise, dampening demand further.

Prices of BS-VI two-wheelers are expected to rise by 10-15 per cent compared to the present generation BS IV grade. Hero, Honda and TVS have already rolled out one model each with BS VI engines. After April 1, 2020 only sale of BS VI vehicles will be allowed.

“Scooters have seen a rise in penetration today. In urban vicinities it has almost doubled today from 2010. This is the reason why electric vehicle manufacturers are bidding on the market of two-wheelers in scooters, which promises growth,” says Saharsh Damani, CEO, Federation of Automotive Dealers Association (FADA).

Damani adds, “As two wheelers have seen growth till December 2018, its downfall can be attributed to the BS VI compliance and even the high priced newly launched BS VI products. Companies were concerned over availability of fuel across the nation but the government has promised that fuel will be available across the nation. Places like Delhi, Chennai and Lucknow is where fuel is available “

He also informed that the two-wheeler segment will see rise by June 2020.

After sales

The old economy two-wheeler aftersales market comprises of dealer workshops and local garages with the latter commanding 80 per cent market share. While the former lacks good customer experience due to expensive billing, the latter lacks trustworthiness. One needs to see, what happens to these small garages in the coming days.

“Scooters have seen a rise in penetration today. In urban vicinities it has almost doubled today from 2010. This is the reason why electric vehicle manufacturers are bidding on the market of two-wheelers in scooters, which promises growth.”

Saharsh Damani, CEO, Federation of Automotive Dealers Association (FADA)