Two-wheeler industry in India Contributed by AdministratorTuesday, 07 April 2009Last 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 nowapproaching a stage of maturity

Introduction

The two-wheeler industry in India has grown rapidly in the country since the announcement of the process ofliberalization in 1991.

Previously, there were only a handful of two-wheeler models available in the country. Currently, India is the secondlargest 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. 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-wheelerindustry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors IndiaLtd (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 publictransport in many parts of India. Additionally, two-wheelers offer a great deal of convenience and mobility for the Indianfamily. 

A description of the evolution of the two wheeler industry in India is usefully split up into four ten year periods. Thisdivision 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 throughmeans like permitting foreign collaborations and phasing out of non-manufacturing firms in the industry. The automobileindustry being classified as one of importance under the Industrial Policy Resolution of 1948 was therefore controlled andregulated by the Government. 

In order to encourage manufacturing, besides restricting import of complete vehicles, automobile assembler firms werephased out by 1952 (Tariff Commission, 1968), and only manufacturing firms allowed to continue. Production ofautomobiles was licensed, which meant that a firm required a licensing approval in order to open a plant. It also meantthat a firm’s capacity of production was determined by the Government. During this period, collaborations withforeign 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 theeconomy, at their peak. 

During 1981-1990 significant reforms were initiated in the country. 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 alltwo-wheelers up to an engine capacity of 100 cc. This prompted a spate of new entries into the industry the majority ofwhich entered the motorcycle segment, bringing with them new technology that resulted in more efficient productionprocesses and products. The variety in products available also improved. Change sin government policies gave firms theflexibility to choose an optimal product and capacity mix which could better incorporate market demand into theirproduction 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 annumovershooting 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 reformsencompassed several areas like finance, trade, tax, industrial policy etc. The reforms that began in the late seventiesunderwent 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 goalof 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 productfeatures & 

b) An increase in sales volumes in the motorcycle segment vis-à-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 onlyproducers of two-wheelers in India. However, Bajaj signed a technical collaboration in 1960 with Piaggio of Italy toproduce Bajaj Scooters. This deal expired in 1971.

The condition of motorcycle manufacturers was no different. Until the mid 80’s, there were only three majormotorcycle 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 IdealJawa (India) started manufacturing the 250cc Jawa motorcycles under license from Jawa Motorcycles ofCzechoslovakia. 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 asmooth ride before, faced fierce foreign competition. 

Motorcycle companies like the Yamaha, Honda, and Kawasaki, set up shop in India in collaboration with various Indiantwo-wheeler companies. Companies like Escorts, Rajdoot and faced immense competition from smaller 100 cc Japanesetechnology motorbikes. Bikes manufactured by Hero Honda, the only company manufacturing four-stroke bikes at thattime, gained massive popularity. 

In the mid 80’s, Kinetic introduced a variomatic gearless scooter in collaboration with Honda. This scooterbecame 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 getused to driving either motorcycles or gearless scooters. Many companies such as Kinetc, TVS, and Hero also startedmanufacturing 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 thephasing out of two stroke two-wheelers from production. Currently there are around 10 two-wheeler manufacturers in thecountry, 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 ofmanufacturers such as Indus and Hero. These can be recharged from convenient household electrical points. The onlydisadvantage 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 werevery 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 ata rapid pace and brands are gaining prominence. Thus there is an increased focus on the premium segment which hasan increased scope for differentiation.

Buyer Power is relatively high with buyers becoming more discerning. Reliability and economy have become more of ahygiene factor. Buyers now demand two-wheelers that fit their personality thus increasing the scope for differentiationand branding. 

Provision of easy financing through EMI’s has reduced the price sensitivity to a great extent. This has resulted inhigher 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 reduceddue 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% to16% and allowing for 100% FDI. However, the investment required for setting up large distribution channels and servicestations can be a major entry barrier. 

Another significant entry barrier is the brand building required. Thus, initially foreign players set up Joint Ventures withindigenous companies. After establishing their brand they have launched their own line of products–Honda withHero 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 carhas been positioned at a price point that fills the vacuum between a motorcycle and a low-end car such as the Maruti800. Previously, the price of even a low end car (2.5 – 3 Lakhs) was too high to attract the customers from theentry and executive two wheeler segment.

Since brand loyalty is lower for these segments vis-à-vis the premium segment, these segments may be threatened by theTata car. Their buyers will consider the convenience and status associated with owning a car, which is reasonably pricedand 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 inputcosts, lack of retail finance and a nosedive in demand–it was a roller-coaster ride for the two-wheeler industry in2008.

The irony that encapsulated the sector was reflected in the fact that when all the manufacturers were crying hoarse aboutdifficulties in selling products, sales during the Jan–Nov ‘08 actually grew. When some companies werefinding it difficult to sell motorcycles in the price range of Rs 35,000 to Rs 65,000, some others thought of launching bikespriced 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-wheelermajor Mahindra& Mahindra saw an opportunity to test waters in two-wheeler space by forming a joint venture with KineticMotor.

Italian superbike maker Ducati’s launch of a range of bikes, priced between Rs 15 lakh and Rs 50 lakh, andarrival of Suzuki’s Hayabusa tagged at Rs 12.5 lakh were undoubtedly talking points, but the industry talk for mostof 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 fromtwo-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 sectorwith Rs 500-crore investment that will see it manufacturing of light sports aircraft and applications for aerospace, besidessetting 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 asense of satisfaction on being able to not only withstand the intense pressure of market slump but also expand its marketshare.

The company announced in the beginning of the year that it would launch 12 models in 18 months, and commissioned itsthird 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 125cc bike ‘Flame’. After doing rounds of various courts and defamation suits, TVS had to launch a modifiedsingle 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 jointventure and deciding to walk separate ways. On the contrary, Mahindra & Mahindra announced its entry into the two-wheeler segment by forming a joint venture with Kinetic Motor Company (KMC) in which it held 80 per cent stake. M&Mhad 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 itshould 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 beingthe only exception since it reported a 17% decline in sales. But despite doing poorly compared with February 2008, Bajajmanaged to claw back to the second position in the domestic two-wheeler pecking order – a position it hadrelinquished 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) andlaying claim to a market share of over 56%. Much of this growth has come from the company’s new launchessuch 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 thefirst month of sales, the XCD 135 DTS-Si sold 20,668 units. In the over 125cc segment, Bajaj sold 80,164 units acrossbrands Platina 125, Discover, XCD 135, Avenger and Pulsar, claiming 40% share of this segment. It plans to launch fourproduct 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 inthe 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 expectedto touch the 20 crore-unit mark by the end of 2008, according to industry captains. Interestingly, China alone accounts for75% of the global electric two-wheeler market with 1.50 crore units, followed by the US with 24 lakh units. Ever since itsentry in to the Indian market two years ago, the electric two-wheeler industry is gaining ground substantially by notchingup 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 greenfieldprojects, including Ultra Motor, Hero group, TVS, Tube Investments of India, Atlas and the Lohia group. As many as 70individual traders have taken a plunge into this business by importing completely knocked down kits (CKDs, needed toassemble a vehicle) from China and selling them in the market. 

“With rising fuel prices, increasing urbanisation, cost of ownership, adherence to climate changes, a lowermaintenance cost compared to petrol-driven two-wheelers, economy and convenience, it is expected that the industry willsee 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 beeasily 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 themost accepted concepts globally. Electric battery-operated vehicle technology is also more affordable compared to anyother 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 isin a mature state. Not much improvement is possible with respect to reducing exhaust gas emission. As the situationstands today, electric vehicle technology is a worthy viable alternative to a petrol vehicle. Countries like China, where75% 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-wheelerand at a much lower maintenance cost. The e-vehicles are fuel-free and hence cheaper to run by at least 80% andsupport 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% inits favour. The e-scooter segment is addressing key customer needs as it is convenient to use (with light weight, safedriving, no gears, clutch or starter) and economical (with lower initial and running costs), apart from its enormous latentdemand. 

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 youngand techno savvy customers with dependable after sales, parts and service support. Battery is an area of concern. Abattery’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 agegroup of 17-40 years are ideal customers for e-vehicles, he pointed out. It is important that companies design anddevelop components keeping the Indian customers in mind. With much higher specifications/performance, the electricvehicles are more suitable for Indian road conditions. Companies will have to invest heavily in technology platforms likebattery, motor, controller, to boost demand and keep the market growing. Currently the industry is not growing at a higherpace 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 spareparts, difficulty in charging (battery) at public places, inadequate customer promotions and difficulties in registering insome 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 lendinginstitutions 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 investment-cum-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 supplychain and a strong distribution and dealers network. Details of firms within the two-wheeler industryPeriod of entryNameof 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 cc1970-1980KineticEngineering 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 cc1981-1990TVSSuzuki, JapanmotorcycleInd-Suzuki 100 cc Bajaj Auto Ltd.Kawasaki, JapanMotorcycleKawasaki Bajaj 100cc Escorts Ltd.Yamaha, JapanMotorcycleYamaha RX 100 cc Hero Majestic Ltd.Honda, JapanMotorcycleHero Honda 100cc Kinetic Engineering LTd.Honda, JapanScooterNH 100 cc Lohia Machinery Ltd.Piaggio, ItalyScooterVersa XE EnfieldIndiaZundapp-Werke GmBHmopedmotorcyclemotorcyclemotorcycle50cc50cc80cc100cc1991-1999Bajaj Auto Ltd.-moped – scooteretteSunny TVS-scooter-scooteretteScooty KineticHondascooter-scooteretteMarvel TVS-scooterSpectra Kinetic Motors-ScooteretteStyle 

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