A

Project Report

On

Demand Analysis of Two Wheeler Industry in India

In
Economics

IN PARTIAL FULFILLMENTOF THE REQUIRMENT OF THE AWARD

FOR THE DEGREE OF
Master of Business Administration
UNDER
Lovely Professional University, Punjab

(Session: -2019-2021)
 INDEX

Sr no. Content Page No.

1. Demand Analysis- Demand function of Indian Two-Wheeler 3-4

Market

2. CASE ANALYSIS – (Links to the other readings/ references) 5-7

3. Ideas and its’ Origin 8-10

4. Case Related Questions –Answers 11-17

5. Practical Application relating Concepts –Conclusion 18-26

6. References 27

2
INTRODUCTION

Demand Analysis- Demand function of Indian Two-Wheeler

Market

Demand analysis is a core topic in managerial economics, for it seeks to search out and

measure the determinants of demand, thus, forces governing sales of a product. It is a

research used to determine what type of customers are willing to buy a particular product and

how many units they are likely to buy and at what price range.

“Demand” for a product (good or service) in economic terms, may be defined as, “Amount of

a product which will be bought per unit of

time at a particular price.” In demand

analysis, one should recognize that at any

point in time the quantity of a given

product that will be purchased by the

consumers depends on a number of key

variables or determinants. A demand

function in mathematical terms, expresses the functional relationship between the demand for

the product and its various determining variables.

The Indian two-wheeler industry has come a long way since its humble beginning in 1948

when Bajaj Auto started importing and selling Vespa Scooters in India. Since then, the

customer preferences have changed in favour of motorcycles and gearless scooters that score

higher on technology, fuel economy and aesthetic appeal, at the expense of metal-bodied

geared scooters and mopeds. These changes in customer preferences have had an impact on

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the fortunes of the players. The erstwhile leaders have either perished or have significantly

lost market share, whereas new leaders have emerged.

The technological backwardness of the Indian two-wheeler industry was one of the reasons

for the initiation of reforms in 1981. Foreign collaborations were allowed for all two-

wheelers up to an engine capacity of 100 cc. This prompted a spate of new entries into the

industry, the majority of which entered the motorcycle segment, bringing with them new

technology that resulted in more efficient production processes and products. The variety in

products available also improved after ‘broad banding’ was allowed in the industry in 1985 as

a part of NEP (National Energy Program). This, coupled with the announcement of the MES

of production for the two-wheeler industry, gave firms the flexibility to choose an optimal

product and capacity mix which could better incorporate market demand into their production

strategy and thereby improve their capacity utilization and efficiency. The reforms that began

in the late seventies underwent their most significant change in 1991 through the

liberalization of the economy. The two-wheeler industry was completely deregulated. In the

area of trade, several reforms were introduced with the goal of making Indian exports

competitive. The two-wheeler industry in the nineties was characterized by

a) An increase in the number of brands available in the market which caused firms to

compete on the basis of product features, and

b) Increase in sales volumes in the motorcycle segment vis-à-vis the scooter segment

reversing the traditional trend.

The case is basically based upon the time, when India had an economic slowdown in 1995-

98, and all the industries were going through a tough recession, including the heavy, medium

and light industry. But what attracted the attention at that point of time, was the performance

of the two-wheeler industry that recorded a compound annual growth rate of 10% in 1995-96,

and 12% in 1996-97. Though it initially seemed to be an outlier case, but an in-depth analysis

4
of the situation reveals that the demand conditions of the two-wheeler industry remained

stable and strong, throughout. We will henceforth discuss, the factors that determined this

strong demand in that period, and also throw light upon the present-day conditions of the

two-wheeler industry, wherein it is presently going through a slowdown, due to various

political and socio-economic reasons.

From India’s perspective, the auto sector and understanding dynamics are very important. It

generates direct employment for close to 20 million people and total employment (direct +

indirect) for close to 40 million people. According to a report published in January 2019,

India has become the world’s largest two-wheeler market on the back of rising urbanization,

increasing purchasing power and an enhanced need for connectivity, particularly in mid-sized

and smaller cities.

Thus; throughout this report, we will analyse the demand factors that kept the two-wheeler

industry steadily afloat during 1995-98, and also the present-day scenario of the industry.

CASE ANALYSIS – (Links to the other readings/ references)

The case starts with a peek into the economic slowdown, during 1995-98, in India, when

none of the industries, irrespective of its’ size was spared from the repercussions of the

roaring recession. But the two-wheeler industry stood apart, by posting a steady growth curve

during all these years. Initially, it seemed to be an outlier, but an in-depth analysis by the

economists, revealed that there was a strong demand for the two-wheelers throughout this

period, albeit the larger part of the nation was facing issues like; lack of demand, as well as

supply-side bottlenecks, especially the infrastructural bottlenecks. Amidst all these tensions,

the two-wheeler industry registered a compound average growth rate of 10% in 1995-96 and

12% in 1996-97.

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 Figure: Tabular and Graphical Representation of the overall growth rate of the Automobile
Industry versus the growth rate of two-wheeler industry

From the above figures, it is clear that in 1997 when the automobile industry registered a

negative growth overall, the two-wheeler industry registered an impressive 4% rate of

growth. The market for two-wheeler industry in India can be segmented into three major

zones, on the grounds of- Geography, Income and Gender. The geographical segmentation is

in terms of urban and rural demand. Income segmentation exists in urban areas, where the

demand for the two-wheelers come from lower-middle and the lower income groups. In rural

6
areas on the other hand, the demand is from the rich, upper-middle and lower-middle income

groups. Age-wise segmenting, the demand for two-wheelers is generally high among young

people in the urban metropolis, whereas in the semi-urban and rural areas, the demand is

across all categories. The marketing departments of the leading auto-manufacturers also

discovered that, while the demand for scooters was prevalent both among males as well as

females in the western, central and south-central parts of the country, in other parts scooter

riders were generally males.

During the times of recession, the demand in urban areas was high, but steady and hence

could not be an attribute towards the demand-led growth in the auto industry. Two-wheelers

being well within the reach of the common man, was facing a growing demand in rural areas

where the middle-income level were growing at an impressive rate. It was partly as a result of

the government’s support policy, in terms of input items for agriculture like power, fertilizer

and output of food grains by providing the support price for buying food items from

agriculturalists in rural areas. This resulted in the growing per capita real income of these

agriculturalists, along with the fact that terms of trade tilted in favour of the rural population

vis-à-vis the urban population.

The two-wheeler industry comprises of players like Bajaj Auto, Hero Honda, TVS Motor,

Yamaha Motor, Kinetic and others. The two-wheeler segment has enabled significant growth

and has given a thrust to the automobile industry in India with respect to production, sales

and exports of the two wheelers.

Research suggests that two wheelers are amongst the most sought-after automobiles in India.

The economic growth, need for better conveyance and improvement in the road infrastructure

coupled with better credit and financing options, have been a major catalyst in the growth and

development of the two-wheeler segment in India. Further, the new and improved features on

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the two wheelers, their stylish and trendy looks and a rage with the country’s youth have

formed a substantial influence in determining the consumer behaviour. This has thus ensured

that the two wheelers remain on top of the automobile industry’s agenda growth in the

demand for in India. A study by the Investment Information & Credit Rating Agency of India

(ICRA) said that there were multiple factors for the growth of two-wheeler sales in India

during the fiscal that just ended. ICRA says that a strong recovery in the rural market along

with a solid demand for scooters helped revive the two-wheeler market in India. The strong

demand in scooters also rubbed off an entry-level motorcycle as well. Thus; one can rightly

say that the future of the two-wheeler industry is promising as long as rural income grows

along with the middle-class population.

Ideas and its’ Origin

The two-wheeler industry has undergone many changes, from its’ starting years, we have

gone through this changing landscape, and below are few important dynamics of the industry-

 With an expanding market and entry of new players over the last few years, the Indian

two-wheeler industry is now approaching a stage of maturity. Previously, there were

only a handful of two-wheeler models available in the country. Currently, India is the

second largest producer of two-wheelers in the world. It stands next only to China and

Japan in terms of the number of two wheelers produced and the sales of two-wheelers

respectively. There are many two-wheeler manufacturers in India. The major players

in the 2-wheeler industry are Hero Honda, Bajaj Auto Ltd (Bajaj Auto), TVS Motor

Company Ltd (TVS) and Honda Motorcycle & Scooter India, Private Limited (HMSI)

accounting for over 93% of the sales in the domestic two-wheeler market. It is

8
 noteworthy that motorbikes segment’s share is just below 80% of the total 2-wheeler

market in India which is dominated by Hero Honda with a market share of 59%.

Scooter segment’s market share is about 18% which is led by Honda Motorcycle &

Scooter India, Private Limited (HMSI) with a market share of 43%. Three-fourth of

the total exports in the two-wheeler automobile industry are made in the motorcycle

segment. Exports are made mainly to South East Asian and SAARC nations.

 The two-wheeler has always been an intrinsic part of the Indian milieu. It offered and

continues to offer the Indian middle class the freedom from the clutches of an often

non-existent or unreliable public transport system. It offers mobility at a reasonable

cost. For a large portion of the population a scooter or a motorcycle is a necessary

accessory for their livelihood. From the financiers’ perspective, servicing this industry

and this customer segment is an operationally intensive exercise, covering locations

that fall outside city limits and being dependent on correspondent banking

relationships and a robust collection infrastructure. In the case of a downturn, caution

enters the equation as financiers look to keep NPAs under control. The customer

typically belongs to the lower-middle and middle class. For this segment, aspirations

have outpaced real income growth leading to a greater propensity to borrow and

spend.

 With rising inflation, this segment has found itself over-leveraged. The hardening of

interest rates at such a juncture leads to the customer postponing or deferring a new

purchase. This is what has happened to the two-wheeler industry today. Presently,

Manufacturers are also working at increased segmenting of the market launching

products aimed a newer segment like girls and women. Newer products, such as

electrically powered motorbikes are also being introduced in the market. The market

also is seeing a lot of action in the 150cc plus market with new models slated to hit

9
 the market. At the same time, brand building and promotional spends of top

manufacturers have not shown significant reduction, keeping the category in the

minds of potential. In the domestic market two segments are expected to contribute

significantly to growth. The urban middle class (annual household income between Rs

2-10 lakh) and the rural aspirers (annual household income between Rs 1-2 lakh).

Both these segments offer unique challenges. The growth in the urban middle class

will be driven by increasing number of households and rising income levels. Thus,

product demand will get created and the focus will be on delivering affordable

financing.

 Existing financing sources are going to be challenged given the reach required and the

cost of serving these “higher credit risk” segments. Two-wheeler players will need to

develop captive or alliance opportunities for credit provision in such markets. (In

Indonesia, the absence of a developed financing infrastructure has prompted local

players to create their own captive arms for their customers). The growth in rural

aspirers will be primarily driven by an increase in penetration levels (current figures

are at 15 vehicles per thousand household). The challenge here is to create a unique

product for this market, rather than an adaptation of the existing urban vehicle, which

meets the needs and price expectations of the customer.

 Finally, local players need to explore global markets to de-risk local demand cycles.

India has players which have the scale and capabilities to compete on a global basis

and there is a significant opportunity available in developing markets, particularly in

South East Asia and Latin America. The critical aspect is not to view this as an

exports’ option but as an opportunity to create a local dominant position in these

markets.

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 Case Related Questions –Answers

Q1. Comment on the role of market segmentation on the demand for two-

wheelers.

 “Market Segmentation” may be defined as the process of dividing a broad

consumer or business market, normally consisting of existing and potential

customers, into sub-groups of consumers based on some type of shared

characteristics. The segments created are composed of consumers who will

respond similarly to marketing strategies and who share traits such as similar

interests, needs, or locations. A market segmentation strategy organizes the

customer or business base along demographic, geographic, behavioural, or

psychographic lines—or a combination of them.

The Indian two-wheeler market can be segmented into three major zones;

geography, income and gender. The geographical segmentation is done

majorly done on the grounds of, urban and rural demand. Income in rural areas

by and large depends on the agricultural productivity. The income

segmentation in the rural areas, in terms of the demand for two-wheelers can

be divided into three sectors – the rich, the upper-middle and the lower-middle

income groups. While, that in the urban areas the demand for the two-wheelers

are basically come from the lower-middle and the lower-income groups.

Going by the gender, the marketing departments of the leading auto-

manufacturers has discovered that, while the demand for scooters was

prevalent both among males and females in the western, central and south-

central parts of the country, in other parts scooter riders were generally males.

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 This finely segmented market, could well-elaborate the demand analysis for

two-wheelers, wherein the growing demand was seen from the rural areas

where there was an impressive increase in the number of people from middle-

income level, and the two-wheelers being well within the reach of the

common-man, proved to be a preferred conveyance call.

Q2. Critically analyse how various factors will affect the demand

function of two-wheelers.

 The demand for a good depends on several factors, such as price of the good,

perceived quality, advertising, income, confidence of consumers and changes

in taste and fashion. In the case of the two-wheelers’ market in India, the

factors affecting demand can be classified as follows:

 Tastes and Preferences of the Consumers – Economists often use this term as a part of

non-price determinants. These tastes and preferences, may themselves be affected by

other factors. Advertising, promotions and even government reports can have profound

effects on demand via their impacts on people’s tastes and preferences for a particular

good or service. In the case of two-wheelers, an emerging invention in the low-cost four-

wheeler or a government report spreading awareness about the number of road accidents

affecting the riders of two-wheelers, can have an impact over the tastes and preferences of

the customers.

 Income of the People – As people’s income rise, it is reasonable to expect their demand

for a product to increase and vice-versa. Hence; in the two-wheeler industry, when the

income of middle-class people will rise, it is expected that there will be a considerable

increase in the demand of the product, as the middle-class and lower-middle class people

12
 form a significant share of the Indian population, and the two-wheelers are well within

the reach of these people.

 Changes in Prices of the Related Goods- A product or service can be related to another by

being a substitute or being a complement. If the price of a substitute product changes, we

expect the demand for the good under consideration to change in the same direction as the

change in the substitute’s price. Likewise, the introduction of one-lakh rupee car, i.e., a

reduction in the price of the car can result in a decrease in the demand of the two-

wheelers.

 Consumer Expectations- Another factor which influences the demand for goods is

consumers’ expectations with regard to future prices of the goods. If due to some reason,

consumers expect that in the near future prices of the goods would rise, then in the

present they would demand greater quantities of the goods so that in the future they

should not have to pay higher prices. Similarly, when the consumers expect that in the

future the prices of goods will fall, then in the present they will postpone a part of the

consumption of goods with the result that their present demand for goods will decrease.

Henceforth; if there’s a situation wherein it is declared that a motor equipment that is

imported by the domestic two-wheeler industry, will charge more, and as a result , the

two-wheeler industry is about to increase their selling prices, then the potential customers

will try to buy the bikes, before the price rise, and will thus lead to increase in demand, at

that point of time, and a perpetual fall in demand shortly after the implementation of price

rise.

 The Number of Consumers in the Market – The impact of number of consumers in the

market should be apparent; as far as sellers are concerned, the more the merrier. Besides,

when the seller of a good succeeds in finding out new markets for his good and as a result

the market for his good expands the number of consumers for that good will increase.

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 Another important cause for the increase in the number of consumers is the growth in

population. For instance, in India the demand for two-wheelers has significantly increased

because of the increase in the population of the country, and a need recognition amongst

that population for a relatively cheaper and easier means of conveyance and thus the

resultant increase in the number of consumers for them.

Q3. Discuss, how despite overall recession in the industry the two-wheeler

segment has maintained an overall impressive performance.

 Two-wheelers are the most popular and highly sought out medium of transport

in India. The trend of owning two-wheelers is due to its -

1. Economical price

2. Fuel-efficiency

3. Utility

During those times of recession in 1995-98, strong demand conditions were

exhibited in the rural areas, where people from the middle-income level grew

at an exceedingly good rate. It was partly as a result of the government’s

support policy, through various means like subsidized rate for input items of

agriculture, like power, fertilizer and output of food-grains by providing the

support price for buying food items from agriculturalists in rural areas. All

these measures taken by the government led to a growing curve of per capita

real income of these agriculturalists, along with the fact that terms of trade

tilted in favour of the rural population vis-à-vis the urban population. The

huge rural population (according to World Bank report around 67 percent of

Indian population belong to rural India), along with their growing income

14
 made for a huge market for the two-wheeler industry. In business and trade

research conducted, at that point of time the market leader of two-wheeler

industry, Bajaj Auto has even said that a good monsoon, a good agricultural

production, and an effective support policy of the government would help to

maintain an impressive growth in the auto industry.

Q4. How significant is the role of manufacturers in a ‘demand-driven

industry’ like the two-wheeler industry?

Demand-Driven Manufacturing is a method of manufacturing where production is based on

actual customer orders (demand) rather than a forecast. Gartner estimates that 90% of

manufacturers who are not demand-driven, want to be. This is likely due to the many benefits

demand-driven manufacturing offers, including greater customer satisfaction.

Synchrony defines demand-driven manufacturing as a method that incorporates the best of

Lean Manufacturing, Theory of Constraints (TOC) and Six Sigma principles. It describes

production that is based on actual customer demand with an aim to synchronize everything

(people, method, materials, machines, and information) in order to drive flow. This process is

accelerated by technology that automates processes, digitizes data and connects every

function within the demand-driven organization and to every layer of the supply chain. The

Indian two-wheeler industry can be divided into three sectors, according to the manufacturing

mechanism, that the manufacturers have developed and designed, keeping in mind the

demand-driven nature of the two-wheeler industry:

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Mopeds

 Mopeds are a two-wheeled vehicle with an engine of less than 50cc

capacity. Mopeds, registered tremendous growth during the 2016-17 fiscal, on the

launch of XL100, a four-stroke superior vehicle at a marginal price hike. This helped

the moped segment clocked a strong growth on-year. Barring that mopeds segment

don’t grow too much.

 TVS is the only manufacturer of mopeds, Bajaj, hero and other small makers exited

this segment.

 Tamil Nadu and Andhra Pradesh are the two states accounting for the lion’s share of

the overall moped market in India.

Scooter

 The scooter has been the fastest growing segment in India two-wheeler sector at 15%

CAGR form 2012-2019. Consequently, the share of Scooters in the domestic two-

wheeler sector has increased from 19% in 2012 to 32% in 2019 and is further.

 However, the year on year domestic sales of scooter fell in 2019 and possibly the fall

can be contributed to increased cost of ownership of two-wheelers (mandatory

insurance related regulations), absence of festive schemes by OEMs (facing high

commodity price pressures), tight liquidity conditions for NBFCs (financiers)and

muted demand sentiments in urban areas.

 This is a highly concentrated market, top 3 players accounted for nearly 86% market

share in 2018. (Honda – 57%, Hero – 13% and TVS – 16%)

 Scooter segment is further divided on the basis of engine capacity as “<90 cc (TVS

Pep+)”, “90-125 cc (Activa, Duo)” and “125-150 cc (Vespa, Aprilia)”.

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  90-125 CC is the largest segment in Scooters. It accounts for nearly 97% of scooters

sold in Q4 of FY2019.

 The share of the scooter in the overall exports of two-wheeler has continuously

increased (currently stands at 11% of total). The exports of scooters from India is

predominantly to Sri Lanka forming nearly 73% of total scooters exported from India.

Motorcycle

 In 2019 motorcycles reported industry-leading growth, beating the scooters segment

after many years and inching up their share in the two-wheeler pie after several years

of losing share to scooters.

 The market for motorcycle is concentrated, the top 3 players accounted for 83% of the

motorcycle market in 2018. (Hero – 52%, Bajaj – 16%, Honda – 15%)

Q5. How do you think JV’s can help boost a demand-driven industry like

that of two-wheelers?

 A joint venture is a business entity created by two or more parties, generally

characterized by shared ownership, shared returns and risks, and shared

governance. A leading two-wheeler industry manufacturer has said in a recent

interview, “The joint venture will develop, market and distribute both brand

vehicles in India and sell the vehicles of both the brands in the high-growth

emerging markets around the world.” This line, strongly reflects the potential

of the joint ventures in this industry. The global aspiration of access to a

varied segment of products and market, often lures the domestic

manufacturers to bond with the international players, and vice-versa. The

technology rub-off to develop lower cost products for the Indian Market, has

17
 been a hit strategy across this sector, that has resulted in many strategic joint

ventures across this sector, like

 Hero Honda (1984-2010)

 Kawasaki Bajaj (1986-2004)

 TVS-Suzuki (1982-2002)

 Escorts Yamaha (1982-2001)

 Mahindra-Ford (From 2020)

All these Agreements are focused on creating new products and going after

new markets and segments.

Practical Application relating Concepts –Conclusion

The country's auto industry is in the grip of a slowdown these days. Cars and commercial

vehicles have already been hit by it. Now, the two-wheelers have also been hit. Hero

MotoCorp, the country's largest two-wheeler manufacturer, has reported a 21.18 percent drop

in sales. In July last year, the company sold 6, 79,862 two-wheelers. But in July this year,

sales fell to 5, 35,810 units. The company said in a statement on Friday that the slowdown in

the first quarter continued in July.

The company believes that the remaining time of the year will largely depend on the

monsoon situation or the sale of the festive season. Honda Motorcycles and Scooters (HMSI),

on the other hand, also announced sales figures on Friday. The company's sales have

registered a decline of 10.77 percent. In the month of July this year, the company was able to

sell only 4, 89,631 vehicles. While HMSI sold 5, 48,751 two-wheelers in July 2018. In

addition, motorcycle manufacturer Royal Enfield's sales declined by 22 percent to 54,185 in

July 2019. Last month, 69,063 motorcycles were sold. The company's sales in the domestic

18
market have fallen by 27 percent. It has come down from 67,001 to 49,182. Bajaj Auto sales

were down 13 percent and TVS sales by 15.27 percent.

The scooter segment in particular saw a growth of almost 20 per cent in volumes during

FY2018. A major factor was the increased demand for scooters from rural and semi-urban

areas. People have started to look at scooters as a preferred mode of transport thanks to

improved road quality, a scooter's unisex appeal and the healthy growth in the number of

working women in these areas as well. Adding to it was the continuous activity happening in

the scooter market wherein the manufacturers targeted different segments. The last few

months saw the launch of quite a few 125 cc scooters, most notably, the Honda Grazia,

the TVS Ntorq and the Aprilia SR 125, which again revived the interest in scooters from the

urban market, where people are looking to buy stylish, powerful and feature rich scooters.

Talking about motorcycles, this sub-segment's volumes grew by 13.7 per cent in FY2018,

which was double-digit growth after five years. The main driver of the growth was the 75-

110 cc segment which was due to an increased demand from the rural areas on the back of a

normal monsoon. The 150-200 cc segment saw an increased demand with buyers

transitioning from the 125-150 cc segment. In fact, the higher displacement premium

motorcycles too showed growth in sales volumes and accounted for 7 per cent of the total

motorcycle sales in FY2018. The same figure in FY2014 was merely 2 per cent. ICRA

expects this trend to continue for FY2019 as well.

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 Contrast of the two-wheeler industry Market Share in FY18 and FY19

"Going forward, ICRA expects domestic two-wheeler volumes to grow at 8-10% during

FY2019, on an expanded base of FY2018. In terms of segment wise growth trend, we expect

scooters to continue to outpace the overall two wheeler volume growth in domestic market in

FY2019. Motorcycles are expected to register high single digit growth in FY2019 with a

broad based volume recovery across various sub segments with premium segment continuing

to find favour. Additionally, the recovery in oil prices has resulted in higher demand from

select international markets, which coupled with new markets explored by OEMs would

20
drive export growth in the current fiscal," said Anupama Arora, VP, sector-head and

corporate ratings, ICRA.

Bharat Stage emission standards, are emission standards instituted by the Government of

India to regulate the output of air pollutants from internal combustion engines and Spark-

ignition engines equipment, including motor vehicles. These standards based on European

regulations were first set by the Central Pollution Control Board, in the year 2000. In its

recent judgment, the Supreme Court has ordered the nation-wide implementation of BS-VI

standards from April 1, 2020. This has caused a country-wide slowdown in the entire

automotive industry. It is no secret that the automotive industry in India is in a bad spot right

now as the production and sales numbers continue to drop month after month. Part of the

consequences include vehicle manufacturers having to cut jobs as they reduce their output in

an attempt to maintain their own fiscal balances.

The calendar year 2019 is not positive for the Indian two-wheeler market and the growing

pathway has been broken, first time after two years. Indeed, sales have been reported down

since the start and the first quarter already ended with sales down 8.1%, with 4.8 million units

and sale kept declining in the Q2 ending the First Half with 9.67 million units (-10%). In

the Q3 the trend worsened with both July and August sales close to 1.5 million

and September 1.7 million (-21.6%).

In October, sales kept declining in double-digit with only 1.8 million unit sold (-15.2%) and

Year to Date October figures were 16.65 million units, down a huge 13.7%. The electric

scooter segment for which the Indian Government just raised a target to grow at 20 million

units in the next 5 years, dropped over 40%. The Indian market was the second to hit the

“over 20 million sales” milestone after the Chinese – now dropped below this wire –

expanding the gap over all others markets and representing near the 30% of the global two-

wheeler vehicles sales.

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During the 2018, the market leader Hero sold 7.83 million units (+2.7%) and thanks to this

results the brand was able to hit the record of over 8 million global sales (India + export

sales). The recovery in rural demand translated into healthy growth in Hero’s strong hold

entry sub-segment of motorcycles, which accounts for close to 60% of the total segment. The

manufacturer continued to maintain its dominance in the domestic motorcycle segment while

the relatively weak presence in the fast-expanding scooter segment penalized the total

performance, underperforming the industry.

In second place there was Honda with a record of 5.88 million sales (+7.9%). Honda has

achieved impressive market share gains in both the motorcycle and scooter segments, thereby

expanding its share in the overall two-wheeler pie and inching closer to the market leader.

Scooters remain to be the main strength for the brand, which improved the segment share

supported by continued strong demand for its Activa model. In third place the second Indian

manufacturer, TVS, with 3.05 million sales (+13.2%), performing better than the market

increasing its presence across all product segments. In fourth place Bajaj Auto with 2.38

million sales (+17.4%), a great performance considering the weakness of this manufacturer in

the fast growing scooter segment.

Economic Environment

Indian economic growth likely accelerated in Q2 FY 2019, which ran from July to

September, after slowing in Q1, as indicated by a faster increase in private sector activity in

Q2 than in Q1. However, the acceleration was probably modest, given consumer confidence

dropped to a multi-year low in September. Moreover, although the Reserve Bank of India has

slashed interest rates (Repo rate cut by 35 basis points in October, 2019) in recent months,

22
bank lending growth slowed in September to the weakest pace since October 2017, which,

coupled with the ongoing credit crunch among non-bank financial lenders, suggests

consumers are not fully benefiting from lower interest rates. The economy should slow in FY

2019, in part due to frugal lending to consumers and businesses, despite lower interest rates

set by the Reserve Bank of India. Tense relations with Pakistan and a limp global economy

are downside risks. More positively, however, expansionary fiscal policy should support

growth.

A consolidated list that cumulatively summarizes the haul in the growth of the two-wheeler

industry in India, can be noted down as follows:

 Harder to Get Loans

In the current economic environment, banks have become stricter about giving out

loans, favouring only those individuals with high CIBIL scores. Transunion CIBIL

(Credit Information Bureau (India) Limited) tracks and monitors the loan repayment

histories of financial consumers in India and is a trusted establishment used by banks

and financial institutions to assess a person’s credit worthiness. Banks are also being

stringent in lending money to dealers to capitalise their inventory. Often, the

production numbers for automobile manufacturers are helped by their dealerships

placing orders to stock up for potential customers. So, if dealers cannot get loans as

easily, then they too will order fewer units.

 Confusion around BS-VI emission standards

BS-VI norms, is a standard of emission norms set by the government of India. These

norms apply to both fuel and the engine. Currently, BS4 emission norms are in effect

and all car models sold today are compliant with it. The BS-VI compliant engines

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 would be less polluting in terms of the gases and particulate matter emitted from

them. By April 2020, the BS-VI emission norms will come into effect and all car

manufacturers will have to upgrade their engine offerings accordingly. Not all

carmakers have clarified their position regarding the upcoming shift and how it will

affect their product lineup that is offered to customers. As a result, certain buyers are

delaying their new car purchase until there are more details available regarding BS-

VI compliant model choices.

 Waiting for attractive deals closer to BS-VI implementation

Some new buyers are waiting for the BS-VI deadline

to draw closer in order to get the best possible deals.

Dealerships and auto-makers are expected to be scrambling

to get rid of new automobile inventory with BS4 engines

while they can still get registered. In that rush, buyers are likely to be offered ridiculous

discounts to get those models off their hands. A similar situation already happened in 2017

when the sale of BS3 vehicles was banned. Certain manufacturers, particularly from the two-

wheeler industry, were still hoping for an extension on the deadline for the sale of BS3

models. However, when the decision and date were finalised, manufacturers offered great

discounts to get rid of their BS3 inventory.

 Too many back-to-back changes in the industry

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 When there is too much going on in terms of changes and uncertainties regarding

regulations and government policy, it is almost common sense to sit back and not act until

things have settled down. The two-wheeler industry today is in a similar state. In the last year

or so, there have been numerous changes enforced by new regulations with more changes on

the way. From mandatory safety features for all new two-wheelers to increasing the road tax,

rising insurance costs to upcoming emission norms. Each of these types of changes, even if

necessary, tend to lead to an increase in prices which deters new buyers in the mass market.

 The Electrification Equation

Even the government’s rhetoric surrounding electric mobility and electric vehicles leaves

many uncertainties for both carmaker and buyers about what to invest in and more critically,

when to invest. Affordable EVs with sufficient range are a must for the electric mobility shift

to become reality. However, this goal is harder than it seems as the current battery technology

is not at that stage yet and neither is their charging infrastructure. Promises made and goals

set are not enough for the breakthrough that is required to make e-mobility a mass market

option in India. The production and development of electric power trains, battery technology

and charging infrastructure is still in its early stages and will likely take another 3 to 5 years

before mass EV adoption begins.

 Uncertainty of Diesel in the BS6 era

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 Whether carmakers upgrade existing engines to meet the upcoming BS6 emission norms or

make new ones, it is a big investment. The extra cost will undoubtedly be borne by the

customers as well in the prices of the final product - the two-wheeler. There is a huge cost in

making diesel engines compliant to BS-VI standards with an expected jump of at least a

significant proportion of money for all the diesel-powered variants of different two-

wheelers.

Thus; considering all the aforementioned points, regarding the present stage of BS-VI

engines, the two-wheeler industry is going through a majorly changing landscape in terms of

electrification. For instance, Yamaha Motor India entered the 125-cc segment scooter

segment in India with the launch of new Fascino, Ray, Street Rally variants on Thursday,

aiming to tap into a growing market cross-section in the scooters segment. The two-wheeler

maker will exit the 110 cc segment in scooters. Munjal-promoted Hero MotoCorpNSE 1.12

% has emerged as the largest R&D spender among Indian two-wheeler makers, having

invested Rs 3,503.2 crore on it over the last five years as it tries to build technological

capabilities after the termination of its joint venture with Japan’s Honda Motor. In

comparison, Bajaj AutoNSE 0.49 % spent Rs 1,893.3 crore, TVS Rs 1,243 crore, and

EicherNSE -0.20 % Motors Rs 846.1 crore during the period.

Such progressive methods have given a facelift to the Indian two-wheeler market. Although,

the present-day weak customer sentiments cannot be denied, but the government and the

auto-manufacturers, jointly are putting in their best efforts to revive the condition, to bring

back the industry to its long-maintained glorious position.

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References

 “Managerial Economics – A Problem Solving Approach” written by Nick Wilkinson

 Keat Paul G, Young Philip K. Y, Erfle Stephen and Banerjee Sreejata., Managerial

Economics- economic tools for today’s decision makers. Pearson Education India

 “Managerial Economics: Applications, Strategy, and Tactics” written by Frederick H.

Harris, James R. McGuigan, and Moyer

 https://economictimes.indiatimes.com

 https://auto.ndtv.com/news/fy2018-saw-robust-growth-for-two-wheeler-sales-in-india-

icra-report-1836264

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