YS Guleria believes it will be another two to three years before the Indian two-wheeler industry attains peak volumes.
“We need to be cautious for this financial year. Can we come back to the volumes seen in FY2018 or FY2019? I think there is still time to evaluate all these things,” said the Director (Sales and Marketing) of Honda Motorcycle & Scooter India at Autocar Professional’s Two-Wheeler Week webinar.
The silver lining in the cloud is that there is “good potential” in the mid and long-term. According to Guleria, there are a whole lot of headwinds which manufacturers are coping with right now. “The industry is under pressure due to fuel prices,” he said even though the Centre recently reduced taxes on petrol and diesel.
Yet, this does not take away the fact that both auto fuels have seen a substantial hike of over 25 percent since the beginning of this year which is hurting customers. “On the other hand, salaries and wages have not grown in the same fashion. There is pressure on disposable incomes,” said Guleria.
Beyond this, the added levies by way of insurance and safety fitments have only made two-wheelers more expensive and this has dampened buying sentiment in the process. “I think these are the pressures that are visible and also impacting retail finance. In the last 22 months, when we analyse the results of people who bought a two-wheeler on retail finance, it was the highest in September,” he said.
At nearly 50 percent, it was a clear reflection of the pressure thanks to new price points. Combined with higher running costs, this becomes a challenge for the industry going forward. What is also extremely worrying is that demand for entry level motorcycles is “not showing growth compared to every other segment” and it is this product category that has been severely impacted.
While demand for entry-level bikes is the highest in rural areas, it does not mean that there are no customers for them in urban and semi-urban regions. “This segment is not showing growth and is the worst hit,” pointed out Guleria.
Prices have also gone up significantly in the post-BS IV era when the auto industry jumped directly to BS VI emission norms in less than three years on April 1, 2020. As he explained, there was already a 30 percent price hike from BS IV to BS VI beyond the increases that have taken place in the last few years.
This has been borne out by the fact that while revenues have grown, volumes have not kept pace. “It is evident from the data we are getting each month. What we have observed is that rural India remains under pressure even today,” said Guleria. Careful analysis of user profiles and acceptance/volumes across various segments show that the top-end variants are the ones which are still in demand and showing growth.
The buoyancy typically happens in the festive season where the highest rural demand comes from Rajasthan, Bihar, Jharkhand and Uttar Pradesh. Whilst on this subject, all stakeholders were expecting “some positive news around” though it is now crystal clear that the results are “well below our expectations.”
OEMs generally start building up stocks ahead of the festive season but if the sales are not up to expectations, it would require realignment of the production keeping in mind the interest of all stakeholders including the supply chain and dealer network.
“I would not take away the positive sentiments and that ray of hope from our network partners because for instance at HMSI, we have cash-and-carry. We do not have any credit policy, and even today, our 2-3 days of production are pre-booked in terms of despatches,” said Guleria.
This means the network partners “are still sending us money” to have the despatches to happen and they are confident that they will be able to retail. However, as an OEM and to keep the interest of all the stakeholders, “we cannot give a sudden shock” to everyone.
“It is unimaginable in a supply chain that one can announce that next week we will have a production cut. It is important that we need to be prudent enough to catch some signals in the market and start working on the backend of our production levels itself. Even though the inventory level is in control, it is only one aspect of the total business,” explained Guleria.
By the end of the day, it is important for OEMs like HMSI to “control our inventory level for sure” but also be prepared in advance to have further control checks in place. This is to ensure that there is “no sudden overactivity” post-Diwali that could happen in the market.
Growth prospects do not look so great right now for this fiscal and the first half registered just nine percent even while it was in the double-digit range till August. The good news from HMSI’s point of view was that it grew 13 percent as an entity and increased its market share too but that was of little comfort since “we are one part of the industry”.
Observers do not give too much hope for the remainder of the fiscal too with some even reckoning it will slip further into “lower single digits”. This only means that the good old days of 20 million units and over annually will still take some time to recoup. It will, of course, be a great help if the Centre reduces GST levies on two-wheelers to 18 percent from the prevailing 28 percent but whether this will happen is a million dollar question.
Guleria also spoke of HMSI’s electric two-wheeler that will debut soon. "E-scooters are the talk of the town and government support is there. However, there are challenges and there will be no quick shift even while interest will be there for short commuting. We will have our own model in FY2023,” he elaborated.
Clearly, HMSI would rather take one thing at a time even while there is increased interest in electric thanks to generous fiscal sops from FAME 2 as well as the lower GST levy of five percent. There are a growing number of players interested in the electric play ranging from Hero Electric to Ather as well as traditional manufacturers like TVS Motor and Bajaj Auto.
HMSI is obviously keen on not being left behind which explains why the leadership team wants to put at least one product out on the roads. The company already has a good thing going with its Activa which is the leader by miles in the gearless scooter space. Additionally, the fact remains that the internal combustion engine can traverse long distances compared to electric offerings which are largely for short commutes in cities.
It will be interesting to see how HMSI plots its electric scooter strategy especially when there are a host of rivals to contend with. The likes of TVS and Bajaj already have their scooters out on the roads while many others are also in the arena. For HMSI to stand out in this competitive space, it will have to offer something different and attractive with the ‘Wow’ quotient for the customer.