Bajaj Auto’s Executive Director is of the view that it is important at this point in time to put more money into people’s pockets so that they can spend without worrying too much.
Rakesh Sharma makes an important point when the interview kicks off seeking his views on the present state-of-affairs in the two-wheeler industry.
“Sometimes, we get lost just looking at what is happening here and now. If we take a bit of a long shot of the industry, we see that it had its peak in FY2018-19. Since then, for one reason or other, it has been in decline. This is an important aspect that gets lost,” says the Executive Director of Bajaj Auto in a conversation with Murali Gopalan at the opening session of the recently concluded Two-Wheeler Week.
Motorcycles and scooters sold in India basically address the bottom half of the demand pyramid comprising the lower middle class, tradesmen, craftsmen, farmers, youth and so on. These are people who are conservative with their buying decisions simply because they do not have too much money to blow unlike their SUV/car counterparts.
The present slow rate of growth may have been due to Covid-19 but that is not the entire story. The bigger cause is the “progressive increase in taxes and costs for various reasons”, slapping ABS on 150cc bikes, insurance premium going up, the GST levy of 28 percent and so on which has “certainly dampened” demand.
Quite unlike cars, the fundamental price elasticity equation is very different for a two-wheeler. “The moment we increase the price by Rs 2,000 we see a plunge in demand,” says Sharma. Again, compared to cars, a moped, scooter or motorcycle is “very much an essential product” which is at the bottom end of the pyramid. “Its demand and growth has a multiplier effect on the livelihoods of people and in the economy,” he adds.
Clearly, the entry level segment is hurting far more at this point in time and this is the category where retail finance companies are a bit more cautious. There is a double whammy happening right now when prices have gone up and incomes are down especially in the aftermath of the pandemic when jobs were lost and salaries slashed.
The premium segment takes up about 15 percent of motorcycles and has also been hit by extra price points because of the ABS levy and, more recently “very severely” by the shortage of semiconductors (the fact that it has a more affluent base means that demand has never been an issue). This meant that even when demand was reviving, companies like Bajaj Auto were unable to meet it completely because of the chip crisis. Interestingly, the middle segment (125cc motorcycles) is seeing stronger demand.
Sharma acknowledges that the Centre is “balancing many things” and has multiple demands on limited resources. “From the industry side, I can only say that on balance, if there is a move to put more money in the pocket of the ordinary consumer and if that could mean some reliefs on taxes, it would go a long way in building confidence,” says Sharma.
GST cut will power sales
The good news is that there are clear signs that the pandemic is on the wane and with the vaccination programme gaining more momentum, people are “again thinking that there is some kind of certainty” going forward. Sure, there will still be distress on the job front but at least there is optimism “in the way about the future” and normalcy returning.
Perhaps, it is the right time to give some kind of relief to the ordinary consumer which will then manifest itself in spending, reckons Sharma. “On our side (at Bajaj Auto), we feel that the best way to punch the way out of this is by staying to the core of product innovation, giving a good value proposition to the customer, trying to create excitement in the super premium segment while hoping that the semiconductor shortage will resolve itself,” he adds.
Beyond this, the global marketplace is a great opportunity and it is here that Indian companies are “doing extremely well” in the global market. It is also very helpful from the viewpoint of bolstering production and assuring business for vendors. For the record, Bajaj is the largest exporter of two- and three-wheelers with over two million units shipped out annually.
Rakesh Sharma: “For India, this (EVs) is a global opportunity. Overall, the move to electric is good and it is full of opportunities for people like us. It is very difficult for anybody to estimate what percentage of vehicles will be electric in the next few years.”
“If we have a strong and pulsating domestic industry, the international business sits on the shoulders of the domestic industry. And we are very fortunate that we have the world’s largest two-wheeler industry. It is one of those globally where made-in-India and designed-in-India can truly be a concrete force,” reiterates Sharma.
The fact that it has momentum, recognition, local depth and scale are factors in the country’s favour. The demand is in place as also favourable demographics — and if the economy returns and Covid recedes, this could “perhaps be a good time, both from a domestic and global perspective, to invest behind the industry”.
As part of this endeavour, a good beginning could be made in the form of some kind of a “differentiated assistance” to dropping the end price by way of a lower GST. What will also be “really helpful” is putting more purchasing power in the pockets of people since they will “feel happier” to buy an asset. By the end of the day, it is about boosting consumer sentiment which will go a long way in generating demand.
Getting back to the present, the semiconductor crisis is cause for concern. “When we were talking to our vendors, it looked as if it was going to last a month and some certainty would appear. But the way the last four months have gone and with the narrative we are getting, I think this issue is here to stay,” says Sharma.
There is really no way out and the only consolation lies in the fact that this crisis has hit every manufacturer big time. “It is not like we are going to lose some competitive position. Everyone has to manage it,” he adds. The pragmatic option is to accept the situation and manage the front end to the extent possible.
Containing the crisis
The other challenge relates to shortage of containers and what typically takes 30 days can take anywhere between 45-90 right now. Sometimes , there are “some absurd routes” that the shipping company concerned is deploying in order to maximise profitability and utilisation. No new capacity is coming upstream and there is a consolidation which has occurred with 3-4 companies controlling freight movement.
There have been bottlenecks in US ports too and now with a new slew of measures that China has announced to “extensively control” a new outbreak of Covid, this may well choke some of the supply pipeline for containers. “These are the kind of consequences and it will probably take another six months are so before all the knots get undone,” says Sharma.
According to him, this uncertainty could even last a year longer and manufacturers will, therefore, need to be agile and “take account of uncertainty” when planning products and product variants. There is a lot of short-term management that is also imperative since the whole “horizon of managing” is now reduced to a quarter and a month.
“It is very difficult to understand when everything will be in equilibrium and it is better to bite the bullet and say it is going to be there for a year. If it resolves before then. . . fantastic!” says Sharma. This is where timely management response, sound operating principles, product development plans, choices, pricing etc become different. “The first thing is to accept that this is the new normal,” he says.
Reinventing with electric
The conversation shifts to electric and the Bajaj Auto ED makes no bones about the fact that this is “fantastic” and something that will re-energise the industry. Beyond R&D and manufacturing, this transition is also about dealerships doing business differently and the impact on service.
“We are at a point of inflection and it is a great time for those people who are ready to embrace change. And, sometimes you need discontinuity to reinvent yourself,” reasons Sharma. As he puts it, in a large organisation, there is a set way of doing things with equations in place. Then comes a discontinuity like electric and it is a “great opportunity” to reinvent the industry and “reconnect even more powerfully” with customers.
“For India, this is a global opportunity. Overall, the move to electric is good and it is full of opportunities for people like us. It is very difficult for anybody to estimate what percentage of vehicles will be electric in the next few years,” says Sharma.
For now, an electric two-wheeler is still expensive and this is where subsidies have helped in accelerating the transition. However, if battery costs do not come down, will these sops still continue? And, if the subsidy is withdrawn, how will the demand be?
“If the demand does not grow, what will happen to all the investments which the companies are going to be making? It is not an easy question to answer,” says Sharma. Everyone is prepared for electric and it is going to “make a landfall soon”. But exactly when and how “we do not know”.
Bajaj Auto plans to push its Chetak aggressively pan-India and has set up a 100 percent subsidiary to drive the electric business. “We have plans to enter far more cities but due to supply chain constraints things are different. We are trying to strike a balance by occupying some kind of mindshare with customers, keeping a not-too-big order book, and walking the tightrope while expanding to other cities,” elaborates Sharma.
This was first pubished in Autocar Professional's November 15 issue.
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