India Manufacturing Talk

Interest Rates Torpedo Two Wheeler Mfg

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• Author: Nikhil
• October 9, 2007
• Category: Stats and Numbers, Two Wheelers

India’s two wheeler industry consisting of the motor cycle, scooter and “scooterette” segments has been hit by the rise in interest rates as sales have plummeted in the last few months. Sales figures of Bajaj Auto and TVS slid against market leader Hero Honda which as a result of this downturn widened it’s gap with Bajaj Auto – its nearest competitor – by little over one lakh units per month. (One Lakh = 100,000)

Bucking the trend Hero Honda sales went up 4.31% for September 2007 with sales of 314,537 units against 301,577 units sold last year. In contrast Bajaj Auto’s sales slid by 23% in September – selling 232,496 units against 300,141 last year. TVS sales fell 29% against last year – selling 115,091 units.

The bulk of the volume is in the 100 cc segment. Bajaj Auto and Hero Honda make up for the majority of the 7 million unit motorcycle market. Bajaj Auto’s offerings for the 100 cc market – the Platina and CT100 – have slumped whereas Hero Honda’s aggressive pricing enabled models like their CD Deluxe to grow by 23% and grab a larger share of the market.

Bajaj is counting on their 125 cc XCD to replace their 100 cc offerings and help generate volumes. Meanwhile the 150 cc CBZ Xtreme has already increase volume and market share for Hero Honda in the 150 cc segment. TVS sold 61,100 scooterettes this September, up from 55,228 units last year.

Hero Honda’s sales have marginally reduced for the April – September period. Sales are slightly down by 0.27% – producing 1,522,530 units against 1,526,669 units last year.

The two wheeler market in India is specially vulnerable to interest rates due to the customer base for whom the interest burden is around 22%. As interest rates soared customer demand quickly dried up. Two wheeler manufacturers and their suppliers, many of whom are from the SME segment, have felt the pinch. The CII in it’s recommendations for the mid term review of the Monetary Policy 2007 – 08 recognized the need to reduce interest rates.   The expectation is that prime lending rates should be reduced to 12% from 13.25% which is the current level of interest.

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