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Two-wheeler industry in India

Contributed by Administrator Tuesday, 07 April 2009 Last Updated Tuesday, 07 April 2009

Sector Watch Two-wheeler industry in India 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 Introduction The two-wheeler industry in India has grown rapidly in the country since the announcement of the process of liberalization in 1991.

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 twowheelers produced and the sales of two-wheelers respectively. There are many two-wheeler manufacturers in India. Major players in the 2-wheeler industry are Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS). The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto), Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI).

Evolution of 2-wheeler industry The trend of owning two-wheelers is due to a variety of facts peculiar to India. One of the chief factors is poor public transport in many parts of India. Additionally, two-wheelers offer a great deal of convenience and mobility for the Indian family. A description of the evolution of the two wheeler industry in India is usefully split up into four ten year periods. This division traces significant changes in economic policy making. 1960-1969 The first time-period, 1960-1969, was one during which the growth of the two-wheeler industry was fostered through means like permitting foreign collaborations and phasing out of non-manufacturing firms in the industry. The automobile industry being classified as one of importance under the Industrial Policy Resolution of 1948 was therefore controlled and regulated by the Government. In order to encourage manufacturing, besides restricting import of complete vehicles, automobile assembler firms were phased out by 1952 (Tariff Commission, 1968), and only manufacturing firms allowed to continue. Production of automobiles was licensed, which meant that a firm required a licensing approval in order to open a plant. It also meant that a firm’s capacity of production was determined by the Government. During this period, collaborations with foreign firms were encouraged. Most firms existing in this period had some form of collaboration with foreign firms. 1970 – 1980 The period 1970-1980 saw state controls, through the use of the licensing system and certain regulatory acts over the economy, at their peak. During 1981-1990 significant reforms were initiated in the country. The technological backwardness of the Indian twowheeler 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. Change sin government policies 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.
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These reforms had two major effects on the industry: First, licensed capacities went up to 1.1 million units per annum overshooting the 0.675 million units per annum target set in the Sixth Plan. Second, several existing but weaker players died out giving way to new entrants and superior products. 1991-1999 The final time-period covers the period 1991-1999 during which the reform process was deepened. These reforms encompassed several areas like finance, trade, tax, industrial policy etc. 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 & b) An increase in sales volumes in the motorcycle segment vis--vis the scooter segment reversing the traditional trend. Companies in the business Bajaj auto began trading in imported Vespa Scooters in 1948. Meanwhile Automobile Products of India (API) commenced production of scooters in the country in the early 50’s. Until 1958, API and Enfield were the only producers of two-wheelers in India. However, Bajaj signed a technical collaboration in 1960 with Piaggio of Italy to produce Bajaj Scooters. This deal expired in 1971. The condition of motorcycle manufacturers was no different. Until the mid 80’s, there were only three major motorcycle manufacturers in India namely Rajdoot, Escorts, and Enfield. Royal Enfield set up a manufacturing unit in Chennai in 1955 to produce the Bullet 350 motorcycles and in 1960 Ideal Jawa (India) started manufacturing the 250cc Jawa motorcycles under license from Jawa Motorcycles of Czechoslovakia. 1960 also saw the arrival of the third motorcycle in India. Rajdoot was manufactured by Escorts in collaboration with CEKOP of Poland. The two-wheeler market was opened to foreign manufacturers in the mid 80’s. The industry, which had seen a smooth ride before, faced fierce foreign competition. Motorcycle companies like the Yamaha, Honda, and Kawasaki, set up shop in India in collaboration with various Indian two-wheeler companies. Companies like Escorts, Rajdoot and faced immense competition from smaller 100 cc Japanese technology motorbikes. Bikes manufactured by Hero Honda, the only company manufacturing four-stroke bikes at that time, gained massive popularity. In the mid 80’s, Kinetic introduced a variomatic gearless scooter in collaboration with Honda. This scooter became instantly popular with the younger generation, especially people who found it difficult to use geared scooters. The introduction of scooterettes created another segment for people such as women and teenagers who could not get used to driving either motorcycles or gearless scooters. Many companies such as Kinetc, TVS, and Hero also started manufacturing mopeds that proved immensely popular with people who wanted a simple riding machine. The change in the government’s policy owning to pollution control norms and the Kyoto agreement saw the phasing out of two stroke two-wheelers from production. Currently there are around 10 two-wheeler manufacturers in the country, they being Bajaj, Hero, Hero Honda, Honda, Indus, Kinetic, Royal Enfield, Suzuki, TVS, and Yamaha. Market trends today The latest trend in the two-wheeler market is the introduction of electrically operated vehicles from a range of manufacturers such as Indus and Hero. These can be recharged from convenient household electrical points. The only disadvantage is speed, which is restricted to around 25 miles per hour. Currently, the motorcycle market is witnessing a demand for higher volume engines. Previously, the 100 c bikes were very popular owning to the high fuel efficiency offered. However, the market is maturing fast. Sensing this movement, Bajaj has introduced the Bajaj Pulsar, with 150, 180 and 200 cc engines with Dual Twin Spark Ignition (DTSi) technology.
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Motorcycles are now sold as an “experience” rather than a product. New products are being introduced at a rapid pace and brands are gaining prominence. Thus there is an increased focus on the premium segment which has an increased scope for differentiation. Buyer Power is relatively high with buyers becoming more discerning. Reliability and economy have become more of a hygiene factor. Buyers now demand two-wheelers that fit their personality thus increasing the scope for differentiation and branding. Provision of easy financing through EMI’s has reduced the price sensitivity to a great extent. This has resulted in higher growth in the 125-150cc segment. High level of branding has also helped revive niche players like Royal Enfield. Supplier Power is low as most suppliers are exclusive and far more diffused than the industry itself. It is further reduced due to the threat of backward integration by the two-wheeler companies. Barriers to entry have reduced with the introduction of Government policies such as reduction in excise duty from 24% to 16% and allowing for 100% FDI. However, the investment required for setting up large distribution channels and service stations can be a major entry barrier. Another significant entry barrier is the brand building required. Thus, initially foreign players set up Joint Ventures with indigenous companies. After establishing their brand they have launched their own line of products–Honda with Hero Group and Yamaha with Escorts. Threat from Substitutes such as the Tata 1 Lakh car looms large over the two-wheeler industry. For the first time, a car has been positioned at a price point that fills the vacuum between a motorcycle and a low-end car such as the Maruti 800. Previously, the price of even a low end car (2.5 – 3 Lakhs) was too high to attract the customers from the entry and executive two wheeler segment. Since brand loyalty is lower for these segments vis--vis the premium segment, these segments may be threatened by the Tata car. Their buyers will consider the convenience and status associated with owning a car, which is reasonably priced and therefore a viable substitute. Industry in 2008 The grand plans for new launches backed by handsome sales to start with were followed by pressures of rising input costs, lack of retail finance and a nosedive in demand–it was a roller-coaster ride for the two-wheeler industry in 2008. The irony that encapsulated the sector was reflected in the fact that when all the manufacturers were crying hoarse about difficulties in selling products, sales during the Jan–Nov ‘08 actually grew. When some companies were finding it difficult to sell motorcycles in the price range of Rs 35,000 to Rs 65,000, some others thought of launching bikes priced around Rs 50 lakh. The year also saw the home grown companies seeking to assert themselves in terms of technological development, albeit it leading to a court battle over patent between Bajaj Auto Ltd and TVS Motor Co. On other hand, four-wheeler major Mahindra& Mahindra saw an opportunity to test waters in two-wheeler space by forming a joint venture with Kinetic Motor. Italian superbike maker Ducati’s launch of a range of bikes, priced between Rs 15 lakh and Rs 50 lakh, and arrival of Suzuki’s Hayabusa tagged at Rs 12.5 lakh were undoubtedly talking points, but the industry talk for most of the year revolved around sliding sales, triggered by high interest rates and lack of retail financing. The industry was unanimous that the decision by a majority of banks and financial institutions to either stay away from two-wheeler financing or tighten the norms has resulted in slowdown in retail uptake, hurting the sector. Munjals-promoted Hero Group, better known for their two-wheeler prowess, announced plans to foray into aviation sector with Rs 500-crore investment that will see it manufacturing of light sports aircraft and applications for aerospace, besides setting up aviation training institutes and colleges. As for the country’s biggest two-wheeler maker Hero Honda Motors, 2008 was a year that it will look back with a sense of satisfaction on being able to not only withstand the intense pressure of market slump but also expand its market share. The company announced in the beginning of the year that it would launch 12 models in 18 months, and commissioned its third facility at Haridwar, which has a capacity of producing 10 lakh units a year.
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While Hero Honda was busy planning to strengthen its position, its rivals Bajaj Auto and TVS Motor had to fight it out, literally in the courts carrying over last year’s legal battle over usage of twin spark plug technology. Bajaj Auto had accused TVS of violating its patent of twin spark technology, which the latter had planned to use in its 125 cc bike ‘Flame’. After doing rounds of various courts and defamation suits, TVS had to launch a modified single spark ignition engine-based ‘Flame’. A corporate battle was also seen in the electric vehicle segment with Hero Group and Ultra Motors breaking off their joint venture and deciding to walk separate ways. On the contrary, Mahindra & Mahindra announced its entry into the twowheeler segment by forming a joint venture with Kinetic Motor Company (KMC) in which it held 80 per cent stake. M&M had bought operating assets of KMC for Rs 120 crore. Overall, it was a ride in rough terrain for the two-wheeler makers in 2008, but it is desperately hoping that the next year it should be able to cruise on the highway to growth. Industry in Feb 2009 Much like car companies, two-wheeler makers also reported healthy growth numbers in February with Bajaj Auto being the only exception since it reported a 17% decline in sales. But despite doing poorly compared with February 2008, Bajaj managed to claw back to the second position in the domestic two-wheeler pecking order – a position it had relinquished to Honda Motorcycle & Scooter India (HMSI) for some months in the current fiscal. Market leader Hero Honda Motors continued its growth spree, logging 24% growth at 329,055 units (265,431 units) and laying claim to a market share of over 56%. Much of this growth has come from the company’s new launches such as Passion Pro Power Start. Bajaj Auto sold 132,393 units (159,508 units) in the domestic market. Managing director Rajiv Bajaj said that within the first month of sales, the XCD 135 DTS-Si sold 20,668 units. In the over 125cc segment, Bajaj sold 80,164 units across brands Platina 125, Discover, XCD 135, Avenger and Pulsar, claiming 40% share of this segment. It plans to launch four product upgrades next month in the 125cc+ segment. TVS Motor Company reported 13% increase at 107,301 units (95,235 units) in the domestic market. HMSI crossed the one lakh unit mark for the first time this fiscal with 100,089 units (75,406 units), registering 33% sales increase. Market of the future: Electric two-wheelers Leading manufacturers of electric two-wheelers in India believe the ‘future is electric’ as urbanisation, automobile ownership, uncertain fuel prices and climate change are expected to play a major role in driving the market in the coming days. The world electric two-wheeler market has grown from 23 lakh units in 2003 to 1.78 crore units in 2007 and is expected to touch the 20 crore-unit mark by the end of 2008, according to industry captains. Interestingly, China alone accounts for 75% of the global electric two-wheeler market with 1.50 crore units, followed by the US with 24 lakh units. Ever since its entry in to the Indian market two years ago, the electric two-wheeler industry is gaining ground substantially by notching up a year-on-year growth of 35% to 40% and by the end of the fiscal, this may well touch 3 lakh units. With Electrotherm driving into the Indian market in 2006, India has seen many leading manufacturers with greenfield projects, including Ultra Motor, Hero group, TVS, Tube Investments of India, Atlas and the Lohia group. As many as 70 individual traders have taken a plunge into this business by importing completely knocked down kits (CKDs, needed to assemble a vehicle) from China and selling them in the market. “With rising fuel prices, increasing urbanisation, cost of ownership, adherence to climate changes, a lower maintenance cost compared to petrol-driven two-wheelers, economy and convenience, it is expected that the industry will see a remarkable growth with five lakh units by March 2010, from the projected three lakh units by March 2009,” said Ganesh Mahalingam, MD, Ultra Motors. MM Murugappan, chairman, Tube Investments of India Ltd, adds, “The EVs are highly energy-efficient, least polluting, cost effective and come with reliable technology which can be easily upgraded in terms of speed, battery life and other parts. With 45% of the population working and fuel costs rising, India is poised to see a tremendous growth in the industry.” Though the electric two-wheeler industry is relatively new to the country, its market is evolving very fast and is one of the most accepted concepts globally. Electric battery-operated vehicle technology is also more affordable compared to any other energy-efficient technology. Keeping in mind the growing traffic woes, EVs, with a speed limit of 25 km per hour, are free from registration and licences, and therefore, are very convenient for the consumers. Petrol engine technology is in a mature state. Not much improvement is possible with respect to reducing exhaust gas emission. As the situation stands today, electric vehicle technology is a worthy viable alternative to a petrol vehicle. Countries like China, where 75% of total two-wheeler sales come from EV market, have shown the world how the two-wheeler industry can grow with
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electric technology. An electric two-wheeler can be operated at 1/10th the cost of running a petrol-driven two-wheeler and at a much lower maintenance cost. The e-vehicles are fuel-free and hence cheaper to run by at least 80% and support cleaner and greener technologies. India, on an average, sells seven million two-wheelers every year. The scooter segment is growing fast, at almost 14%. With this, the electric scooter segment is bound to grow manifold. The EV industry is targeting to substitute 10% to 15% of the total scooter segment. Of one million petrol-driven scooter market, the EV industry has already converted 15% in its favour. The e-scooter segment is addressing key customer needs as it is convenient to use (with light weight, safe driving, no gears, clutch or starter) and economical (with lower initial and running costs), apart from its enormous latent demand. The electric two-wheeler industry also has products designed for segment-specific preferences in features, colours, graphics and names and they have been extensively tested and validated for Indian requirements, thereby wooing young and techno savvy customers with dependable after sales, parts and service support. Battery is an area of concern. A battery’s life totally depends on the driving/charging habits of owner and with modern technologies being in place, the industry is fully geared up to tackle any problem. The industry is not looking at particular consumer demographics. Anyone looking for economy, ease and eco-friendliness can immensely benefit from e-vehicles. People like working/dependent women, elderly citizens, small businesses/petty traders and delivery agents in the age group of 17-40 years are ideal customers for e-vehicles, he pointed out. It is important that companies design and develop components keeping the Indian customers in mind. With much higher specifications/performance, the electric vehicles are more suitable for Indian road conditions. Companies will have to invest heavily in technology platforms like battery, motor, controller, to boost demand and keep the market growing. Currently the industry is not growing at a higher pace due to poor quality and reliability of bikes supplied by traders with imported CKD kits from countries like China. Factors such as no after sales service, lack of finance and insurance coverage, inadequate supplies and lack of spare parts, difficulty in charging (battery) at public places, inadequate customer promotions and difficulties in registering in some states are major hurdles faced by the industry. The industry believes that consolidation will happen with the closure of many trader-dealers while banks and lending institutions will come forward to finance the products in the months to come. All the major manufactures of electric two-wheelers are gearing up to tap the huge potential in India with huge investmentcum-expansion plans. While Hero group is planning to invest close to Rs 100 crore for new products, expansion and modernisation at its plants, BSA Motors too, recently announced similar investments in expanding dealer networks and new products. Electrotherm and Ultra Motors are also investing in R&D, designs, new products innovation, strengthening of supply chain and a strong distribution and dealers network. Details of firms within the two-wheeler industryPeriod of entryName of the Indian firmName of foreign collaborator, if anySegmentBrand name of product1955-1969Enfield India Ltd. (EIL)Enfield Ltd. U.K.MotorcycleRoyal Enfield 350 cc Automobile Produce of India (API)Innocenti Ltd. ItalyScooterLambretta Bajaj Auto Ltd. (BAL)Piaggio Ltd. ItalyScooterVespa Ideal Jawa Pvt. Ltd. (IJPL)Jawa Ltd. CzechoslovakiamotorcycleYezdi, 250 cc Escorts Ltd. (EL)CEKOP, PolandMotorcycleRajdoot, 175 cc1970-1980Kinetic Engineering Ltd. (KEL)-MopedLuna Scooters India Ltd. (SIL)-scooterVijai Maharashtra Scoters Ltd. (MSL)ScooterPriya Majestic Auto Ltd. (MAL)-MobbedHero Majestic Sundaram Clayton Ltd. (SCL)-MopedTVS 50 cc19811990TVSSuzuki, JapanmotorcycleInd-Suzuki 100 cc Bajaj Auto Ltd.Kawasaki, JapanMotorcycleKawasaki Bajaj 100 cc Escorts Ltd.Yamaha, JapanMotorcycleYamaha RX 100 cc Hero Majestic Ltd.Honda, JapanMotorcycleHero Honda 100 cc Kinetic Engineering LTd.Honda, JapanScooterNH 100 cc Lohia Machinery Ltd.Piaggio, ItalyScooterVersa XE Enfield IndiaZundapp-Werke GmBHmopedmotorcyclemotorcyclemotorcycle50cc50cc80cc100cc1991-1999Bajaj Auto Ltd.moped – scooteretteSunny TVS-scooter-scooteretteScooty KineticHondascooter-scooteretteMarvel TVSscooterSpectra Kinetic Motors-ScooteretteStyle

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