Competition hots up in two-wheeler segment

By Ramnath Subbu

MUMBAI, OCT. 15. The motorcycle segment of the two wheeler industry continued its aggressive growth path. With newer and sleeker models entering the market on a regular basis, the consumer has wider choice.

For the six months ended September 30, 2000, motorcycle sales posted a growth of 32.2 per cent and constituted more than 53 per cent of the total two-wheeler market size. The ungeared scooter segment, in the same period grew by 26.2 per cent. The geared scooter segment expectedly showed a negative growth of 28.5 per cent.

The shift towards motorcycles is not a new phenomenon and in fact, has been on for the last three years. In fact, with the rapid waning of the scooter segment, all major two wheeler manufacturers - Bajaj Auto, TVS Suzuki, Hero Honda Motors, Kinetic Motors and LML - are slugging it out for a larger piece of the motorcycle segment. Also, the four-stroke motorcycles segment has seen a phenomenal growth and is expected to eat into the two-stroke market shares.

Over the last three years, the motorcycle segment has been growing in excess of 22 per cent while the industry as a whole has been growing at 8-9 per cent. Now with competition intensifying, it is expected that the motorcycle segment will, over the next couple of years, gradually see a slowing down of the phenomenal growth rates it has been witnessing. Also, with competition comes lower margins and profitability pressures and the future could see these eating into the bottomlines of manufacturers as they would have to increasingly step up promotional expenses. Earnings for companies would most likely be through volumes rather than margins.

The scooters market has been slowly fading and companies were offering incentive schemes early in the year which helped demand to some extent. The increase in sales tax which was quite significant in the north - the dominant scooter market, postponed new buying. Also, it is expected that the emission norms compliance could, in future, precipitate an acceleration in the shift from scooters to motorcycles.

Moped manufacturers have essentially regional strengths with most players being dominant in their respective regions. Thus, moped sales depend on the growth in a particular State in a given year. Being essentially entry-level products, mopeds are sensitive to price increases and the sales tax increases in other products could prompt buyers to go in for mopeds which could positively impact sales.

With the first half of 2000-01 figures starting to trickle in, Bajaj Auto announced a massive 104 per cent growth in motor cycle sales for the six month period ended September 2000 selling 2.02 lakh units (99,236 units). Also, in order to consolidate its position in the industry, it had earmarked an investment of Rs. 550 crores in the ungeared scooters and motorcycles segment. The investment is to be completed during the next 18 months and envisages an enhancement in capacity to 25,000 a month for the ungeared scooters and to 60,000 a month for motorcycles. Hero Honda Motors is to invest Rs. 100 crores annually over the next two years in raising capacity at its Dharuhera plant from three lakhs to 3.50 lakhs as well as in its new products. It plans to launch two new motorcycles each in the current and next year. It is also targeting sales of 10 lakh motorcycles for the full year against 7.61 lakhs in 1999-2000. The chunk of sales is to come from Splendor, its best selling product. The company continues to have a major market share of 48 per cent in the segment.

Kinetic Motors managed to grow in 1999-2000 when the scooters segment slipped by around 5 per cent. KML's problem has been its reliance on scooters, a shrinking segment. Kinetic Engineering, the other group company, has drawn up plans for a number of product launches in motorcycles. It's entry level product is the Challenger - a 4-stroke 100 cc product. This is to be followed by a 125 cc and a 150 cc product developed with Hyosung of Korea - the GF 125 and GF 150. The company plans to sell 60,000 Challengers and 15,000 GF 125 and GF 150 in the current year.

TVS Suzuki had launched products such as Fiero XL Super heavy duty and TVS Sport. Also, the 4-stroke 150 cc Fiero is picking up. The new Mysore plant originally set up for producing Spectra, the 4 stroke scooter, will be used for mopeds and motorcycles as the Spectra did not elicit the planned response. TVS' vehicles are fitted with cat converters but by 2003, the company will switch its entire range to 4-stroke engines.

LML, a scooter major, delayed its venture into motorcycles, postponing the launch of its products from March 2000. LML will, over the next two years, be investing Rs. 120 crores to enhance its capacity to 7.2 lakh vehicles covering all segments except mopeds. It has a tie-up in place with Daelim of Korea for motorcycles. In the current financial year, it plans to launch eight two-wheeler products including motorcycles and upgraded versions of all existing products.

However, there could still be some steam left in the scooter segment. LML has lined up models targeted at a premium segment and Piaggio plans to make a comeback with the launch of the 4- stroke Vespa. Besides, global major Honda is setting up a subsidiary in India for scooters. With these big guns introducing their top of the line models in India, this segment in for intense competition. It would take something special to re-kindle the fortunes of scooters though.

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Section  : Business
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