Honda sees two-wheeler demand remaining low till festive season

Prices will further go up from April 1, 2020

Honda Motorcycle and Scooter India Limited is working with over 30 shared mobility players in more than 10 cities Honda Motorcycle and Scooter India Limited is working with over 30 shared mobility players in more than 10 cities | via Commons

Automobile sales across segments in India have been lacklustre over the last few months. The latest monthly data on wholesales by Society of Indian Automobile Manufacturers shows domestic two-wheeler sales fell 16.4 per cent in April to 16.38 lakh units from 19.59 lakh units, a year ago. While motorcycle sales declined 11.8 per cent, scooter sales plunged 25.9 per cent last month.

Honda Motorcycle and Scooter India (HMSI), which is the country’s largest scooter maker, saw a steep 32 per cent dip in sales last month. The maker of Activa and Dio scooters expects momentum to remain slow at least for a couple of months, before some pickup is hoped for in the second quarter when companies will start ramping up production for the festival season.

Consumer sentiments have soured after vehicle prices went up sharply. Insurance premiums rose after third party long-term insurance was made mandatory from September 2018, and, recently, safety regulations made anti-lock braking systems on two-wheelers over 125cc and a combi-braking system on two-wheelers up to 125cc mandatory. This has also increased prices, making the cost of ownership of a two-wheeler expensive, in a segment largely driven by the mass market consumer.

Prices will further go up from April 1 2020 as the BS-VI emission norms will come into effect, which could further hurt demand.

“If I have to come from 1 September 2018 to 31 March 2020, the price impact is going to be anywhere between 15-20 per cent, which is a huge jump, considering the background of the two-wheeler buyer; majority sales are for mass consumption,” Yadvinder Singh Guleria, senior vice president, sales and marketing, HMSI, told THE WEEK.

Automakers like Honda are riding on the hope that the festive season this year will be better than 2018 and customers are also likely to prepone their buying this year as BS-VI vehicles will be much more expensive than the existing BS-IV models.

“In the second quarter, we will enter in the build-up of the festival season, so the industry will see some spike in Q2 (July-September) wholesales. Then BS-VI will be coming around (from April 2019). Retail sales should see some momentum in the second half because of the price differential, which will be visible to the customers between the BS-IV and BS-VI models,” said Guleria.

Meanwhile, as demand has slowed, automakers like HMSI have curtailed production to reduce inventory (stocks) in the market. Data from SIAM shows two-wheeler companies cut total production by 11.6 per cent in April to 18.67 lakh units from 21.11 lakh units in the same month a year ago. Scooter production was cut by a sharp 26 per cent to 4.64 lakh units from 6.26 lakh a year ago.

"The festival season last year didn't move the way industry had anticipated. After that letdown, the industry was facing huge inventories across the network. HMSI started correcting its inventories from November itself. The inventory correction in the industry should continue till the end of June," said Guleria.

Typically, the industry operates at an inventory level of around 30-40 days. Even as auto makers have cut down on the inventory, the industry still has around 40-45 days of stocks, he said, adding, HMSI has reduced its stock in the network to around 37 days.

Despite, the sharper slowdown in scooter sales, the proportion of scooters in the overall two-wheeler market has remained largely stable in recent years. In the year-ended March 31, 2019, scooters accounted for 32 per cent of the overall two-wheeler market, compared with 33 per cent in 2017-18. For HMSI, which is the market leader in the segment, scooters contributed to 67 per cent of its total volumes.

In the motorcycle space, the company has done well in the 125cc segment, where the CB Shine has been among the leaders. How demand shapes up in the higher category (beyond 125cc) is uncertain given the price increase due to the mandatory ABS.

“If customers are planning to buy anything above 125cc, they have to pay for the ABS, which is now at a higher price point, anywhere between Rs 6,500-7,500 additional. How customers react to this new price positioning is early to comment on. So, we are uncertain and cautious about that,” said Guleria.

As cost of ownership has gone up in recent times, more customers have started buying two-wheelers on finance. Last financial year, half of the people buying two-wheelers did so on loans, compared to 40 per cent of them a year earlier. Several non-banking finance companies faced a liquidity crunch last year in the backdrop of the defaults at IL&FS, which constrained finance availability, in turn affecting demand for two-wheelers.

HMSI has its own constraints since it does not have a captive finance arm, which could help in offering competitive interest rates, lower processing fee etc to make buying its two-wheelers affordable. While the company has tie-ups with other lenders and NBFCs, it sees the need for more partnerships to give customers more choice. On Tuesday, it signed a memorandum of understanding with private sector lender IDFC First Bank, which will give Honda customers extra benefits like attractive interest rates, minimum down payment of Rs 999, and loans up to 100 per cent of the two-wheeler value.

"For Honda, people buying on retail finance is on the lower side as we don't have our own finance company. We need to cover up those gap areas and we will be extending our tie-ups with more banks and NBFCs, so that we can bridge this gap," said Guleria.

The company will revamp its portfolio over the year as it gears up for the BS-VI transition. While most of the current models will be updated to the new emission norms, all of them may not, said Guleria, without giving specific details.

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