Hero MotoCorp To TVS Motor's Two-Wheeler Dealerships Are Full. That's The Problem.

Dealers of two-wheelers are grappling with high inventory as makers of scooters and motorcycles continue to push stock despite poor demand.

Outlets are sitting on stock of 60 days on an average, according to BloombergQuint's conversations with a dozen dealerships across India and brands. Demand hasn't picked up, with even the festival season failing to aid recovery. Automakers led by Hero MotoCorp Ltd., Honda Motorcycle and Scooter India Pvt., Bajaj Auto Ltd., and TVS Motor Co. continue to push vehicles to dealerships.

"Dealers are worried as inventory levels continue to soar even after a poor festive and wedding season," Vinkesh Gulati, president at the Federation of Automobile Dealers Associations said. Sales are still at least 20% below pre-Covid levels.

Inventory levels are likely to close at more than 55 days across OEMs as the companies are pushing stock, he said. "Dealerships are full today."

The two-wheeler industry faced poor demand even prior to the pandemic as Indians cut down on spending in a slowing economy. Longer upfront insurance and stricter emission standards increased the cost of ownership. Covid-19 disruption hurt purchasing power.

Still, when restrictions eased, the push towards personal mobility was expected to aid growth for two-wheelers. Instead, the increased cost of vehicles coupled with rising fuel costs dented demand further. And buyers in the hinterland are switching to cheaper, low-range electric scooters.

A case in point is Hero MotoCorp’s bestseller Destiny, which was priced at Rs 60,000 at a showroom in Uttar Pradesh prior to the pandemic. It now costs Rs 75,000. Petrol still retails at Rs 95 a litre, even after retreating from record Rs 100.

For dealerships, there is no sign of the distress abating.

“This is the lowest December month sales I have seen in the last 20 years,” Pradeep Agarwal, a Hero MotoCorp dealer from Cuttack and chairperson of the Odisha lobby, said.

In Odisha, Agarwal said, the dealerships have inventory of more than 60 days across manufacturers. And he said it's not different elsewhere.

If there is one automaker which is hurt the most, it's India’s largest two-wheeler maker Hero MotoCorp. The majority of its sales come from the rural market, which was ravaged by the deadlier second wave.

Demand is down but it continues to push stock at the dealerships.

Hero MotoCorp has already lost 410 basis points market share in motorcycles, reversing some of last year’s Covid-19-led gains, according to a report by Systematix.

The market share loss is also one of the reasons that Hero MotoCorp is pushing inventory, four company dealers told BloombergQuint requesting anonymity out of business concerns.

It has even announced interest waivers, said one of the Rajasthan-based dealers. The stock is higher but demand lower than the pre-Covid levels, he said. He is sitting on inventory of three months.

At one of the largest Hero MotoCorp dealerships in Uttar Pradesh, footfalls have dropped by about 60-65%. And the outlet is sitting on an inventory of around 2,500 or 60-65 days.

Things are not good, the owner said, adding that this is the worst he has seen in the last many years.

Interest waiver by Hero MotoCorp hasn’t helped much, the dealer said. Inventory is inventory at the end of the day, he said, and it’s money that is stuck.

BloombergQuint awaits the company's response to emailed queries.

Two Honda Motorcycle and Scooter India Ltd. dealers from West Bengal and New Delhi face a similar situation. They didn't want to be identified out of business concerns.

The company has already informed dealers that the production will be 50% below last year going ahead, one of them said. That suggests production cuts.

Hari Om Aggarwal, a TVS Motor Co. dealer in Agra, too, won't run out of vehicles even if he sells for two months without adding inventory. He has asked the company to stop pushing more as he is running out of space.

In Alwar, Rajasthan, Rahul Sharma, owner of a Bajaj Auto Ltd.'s dealership, has a similar level of stock. “The company is hoping that demand will bounce back in the new year,” he said. He expects the increasing cost of vehicles to play spoilsport.

HMSI, TVS Motor and Bajaj Auto have yet to respond to BloombergQuint's queries.

With a surge in Omicron infections and a possible third wave, Rohan Kanwar Gupta, vice president and sector head at ICRA Ltd., said the recovery expected to start in December is likely to be delayed by another two quarters.

Dealers fear the worst. Srivastava said if the stress continues in the fourth quarter of the ongoing fiscal and the inventory build-up is not controlled, some of the dealerships might collapse.

“I don’t think the situation is likely to improve anytime soon.”