Pandemic Not The Only Reason Why Sales Of Budget Motorbikes Tumbled
Budget motorcycles were expected to withstand the Covid-19 pandemic much better than other categories as rural India bounced back quicker than expected from its disruption. That didn’t go as expected.
Sales of entry-level motorcycles fell by nearly 27% in the last year to about 4.3 lakh units, according to data shared by Crisil Ltd. That decline was the highest for a segment that accounts for about 60% of total motorcycle volumes and 36% of overall two-wheeler volumes.
India’s hinterland was expected to drive two-wheeler sales, buoyed by a good monsoon, a bumper crop, increased government spending to boost the economy and less severe Covid-19 restrictions compared to urban centres. But analysts BloombergQuint spoke with said a series of price hike prior to the pandemic, followed by lockdown, caused the sales to tumble.
Two-wheeler sales have been impacted over the last two years amid the introduction of anti-lock braking systems and transition to BS-VI emissions standards, Rohan Kanwar, assistant vice president of ICRA Ltd., told BloombergQuint over the phone. This, he said, has increased the cost of ownership of vehicles by at least 20%.
For instance, Hero MotoCorp Ltd.’s Splendor bike has turned expensive by nearly 16%—or Rs 10,000—over a year ago, a North India-based dealer for the two-wheeler maker told BloombergQuint on the condition of anonymity as he feared business repercussions.
Nikunj Sanghi, who owns a Hero MotoCorp dealership in Alwar, Rajasthan, said demand has dropped by nearly 20% over last year amid poor rural sentiment. “Two-wheeler is a mobility solution, which is a need, and if that segment gets impacted, it means there is something wrong in the economy,” he said, adding the entry-level segment’s growth is key for the industry.
Adding Fuel To Fire
Fuel prices at a record high is only adding to the problem, according to Kanwar, rendering costs of vehicle acquisition and operating them further higher. “Hence, for consumers at the bottom of the pyramid, the impact has been significant and has impacted their ability to spend.”
As a result, people in rural areas are shunning mobility solutions and prioritising spends, according to Hetal Gandhi, director at Crisil Ltd. She told BloombergQuint they’re diverting it to assets like tractors and farm equipment.
This explains why rural-focused companies have witnessed a significant decline in sales and market share, she said, with their urban-focused peers gaining market share. Honda Motorcycle and Scooter India Pvt.’s market share, according to data shared by Crisil, rose to 15.2% in FY21 from 13.7% a year ago in the motorcycle segment.
Hero MotoCorp's market, however, fell to 51.7% from 52%, while Bajaj Auto's market share declined from 18.6% to 18%.
“Urban-focused players have gained market share at a time when people are talking about having their own mode of transport,” Gandhi said, adding that in segments above 125cc, the income vulnerability isn’t as much. Hence as you go up to premium motorcycles, she said, growth is seen.
Sales in the 110-125 cc segment, accounting for 21% of volumes, contracted 14% as of March 24 in FY21 to 19.6 lakh units, according to Crisil data. However, the 150-200 cc segment grew 11% over last year to nearly seven lakh units.
Kanwar ties the recovery of the segment to that of the economy. “We always thought two-wheelers isn’t a discretionary segment, but if the economy isn’t doing well, and the people at the low income are impacted, it could lead postponement when there is a significant cost increase.”