The two-wheeler industry is doing far better in a high-interest and high fuel tariff era, and is in fact benefitting from slowdown in four-wheeler sales. At the same time, it is also suffering from declining disposable incomes, in particular, in rural India. pawan chabra discusses the revival prospects of the industry and deliberates on why they should take this current misery as a bright opportunity
Good times can be fodder for lasting pleasant memories as well as inspiration when the tide turns hostile. FY 2010-11 will be remembered by the automobile industry for better than expected growth just about across the board. On one end, the two-wheeler industry sold a gigantic 11,790,305 units, filing a growth of 25.82% yoy for a 12-month period and on the other, the passenger vehicle segment sold 2,520,421 units; growing at a pace of 29.16% as compared to FY 2009-10. Comparatively, FY 2011-12 is an year of dramatic reversals. While the growth in the two-wheeler market has moderated to 14.84% with 7,738,755 units sold during April-October 2011, a negative growth of 1.77% in the passenger vehicle segment (sales of 1,378,513 units in the same period) has already given mild shocks to many honchos in the sales teams of respective auto makers.
As it is already evident several times over, rising interest rates, high fuel costs and falling disposable incomes have taken their toll on passenger vehicle manufacturers. For the uninitiated, India currently has the highest borrowing costs in Asia after Pakistan and Vietnam. On top of that, the Reserve Bank of India has raised the central bank’s repurchase rate by 3.75% since mid-March 2010 to 8.5% in a bid to tame inflation, making things worse for auto makers.
Despite the lowered growth rate as compared to last year, the two-wheeler industry has reason for cheer. Since almost 70% of total purchases in the two-wheeler segment is on cash as compared to passenger cars, where the figure just stands at 30%, the interest rate hike has not impacted the segment as ruthlessly as passenger cars. However, analysts claim that the sector will go through some rough tidings in times to come. Two-wheeler sales rose by just 2% in October, extending consecutive monthly gains since January 2009; while passenger vehicle sales fell for the fourth month in October, dropping by 24% to 138,521 vehicles, the steepest monthly decline since December 2000. There are two possible scenarios being imagined – one says that the growth run will continue and the other says that two wheelers could head the PV way in the coming months.
Rise in fuel prices and interest rates hikes do not pressurise two-wheeler sales to a large extent, but the falling disposable income in rural India is a cause of concern for even two-wheeler makers. The slip in sentiment is also evident in moped sales, which are often considered as the first barometer for rural disposable incomes. Moped sales have been going up and down month-on-month as compared to the last year. From 52,862 units in January, they surged to 60,761 units in February and 64,159 units in March. Then they came down crashing to 59,351 units in April, revived spectacularly to 67,872 units in May and went down again to 63,449 units in June. The flip flop continued as sales went up to 65,933 units in July, slipped back to 58,818 units in August rose dramatically to 68,108 units in September and then skidded alarmingly back to 56,378 units in October. As most two-wheeler makers have been driving sales from a strong rural market for many months now, there are strong signs of tough times for the sector. Market leader, Hero MotoCorp roughly sells 45% of its total production in the rural parts of the country. The company has sold 3,492,737 units during the April-October period growing at 18.54% yoy and expects to close this financial year at a growth rate of 27%. But the hurdles in the rural segment may prove to make that a hard bargain.
Good times can be fodder for lasting pleasant memories as well as inspiration when the tide turns hostile. FY 2010-11 will be remembered by the automobile industry for better than expected growth just about across the board. On one end, the two-wheeler industry sold a gigantic 11,790,305 units, filing a growth of 25.82% yoy for a 12-month period and on the other, the passenger vehicle segment sold 2,520,421 units; growing at a pace of 29.16% as compared to FY 2009-10. Comparatively, FY 2011-12 is an year of dramatic reversals. While the growth in the two-wheeler market has moderated to 14.84% with 7,738,755 units sold during April-October 2011, a negative growth of 1.77% in the passenger vehicle segment (sales of 1,378,513 units in the same period) has already given mild shocks to many honchos in the sales teams of respective auto makers.
As it is already evident several times over, rising interest rates, high fuel costs and falling disposable incomes have taken their toll on passenger vehicle manufacturers. For the uninitiated, India currently has the highest borrowing costs in Asia after Pakistan and Vietnam. On top of that, the Reserve Bank of India has raised the central bank’s repurchase rate by 3.75% since mid-March 2010 to 8.5% in a bid to tame inflation, making things worse for auto makers.
Despite the lowered growth rate as compared to last year, the two-wheeler industry has reason for cheer. Since almost 70% of total purchases in the two-wheeler segment is on cash as compared to passenger cars, where the figure just stands at 30%, the interest rate hike has not impacted the segment as ruthlessly as passenger cars. However, analysts claim that the sector will go through some rough tidings in times to come. Two-wheeler sales rose by just 2% in October, extending consecutive monthly gains since January 2009; while passenger vehicle sales fell for the fourth month in October, dropping by 24% to 138,521 vehicles, the steepest monthly decline since December 2000. There are two possible scenarios being imagined – one says that the growth run will continue and the other says that two wheelers could head the PV way in the coming months.
Rise in fuel prices and interest rates hikes do not pressurise two-wheeler sales to a large extent, but the falling disposable income in rural India is a cause of concern for even two-wheeler makers. The slip in sentiment is also evident in moped sales, which are often considered as the first barometer for rural disposable incomes. Moped sales have been going up and down month-on-month as compared to the last year. From 52,862 units in January, they surged to 60,761 units in February and 64,159 units in March. Then they came down crashing to 59,351 units in April, revived spectacularly to 67,872 units in May and went down again to 63,449 units in June. The flip flop continued as sales went up to 65,933 units in July, slipped back to 58,818 units in August rose dramatically to 68,108 units in September and then skidded alarmingly back to 56,378 units in October. As most two-wheeler makers have been driving sales from a strong rural market for many months now, there are strong signs of tough times for the sector. Market leader, Hero MotoCorp roughly sells 45% of its total production in the rural parts of the country. The company has sold 3,492,737 units during the April-October period growing at 18.54% yoy and expects to close this financial year at a growth rate of 27%. But the hurdles in the rural segment may prove to make that a hard bargain.
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