vishal0882
Vishal Jain
Introduction
The feeling of freedom and being one with the Nature comes only from riding a two wheeler. Indians prefer the two wheelers because of their small manageable size, low maintenance, and pricing and easy loan repayments. Indian streets are full of people of all age groups riding a two wheeler. Motorized two wheelers are seen as a symbol of status by the populace. Thus, in India, we would see swanky four wheels jostling with our ever reliable and sturdy steed: the 2 wheeler
Recent Economic Developments
India is the 2nd largest two-wheeler market in the world with a size of over Rs 100,000 mn. Steps like abolition of licensing, removal of quantitative restrictions and initiatives to bring the policy framework in consonance with WTO requirements have set the industry in a progressive track. Removal of the restrictive environment has helped restructuring, and enabled industry to absorb new technologies, aligning itself with the global development and also to realize its potential in the country. The liberalization policies have led to continuous increase in competition which has ultimately resulted in modernization in line with the global standards as well as in substantial cut in prices. Aggressive marketing by the auto finance companies have also played a significant role in boosting automobile demand, especially from the population in the middle income group.
The total sale of two wheelers in India has touched a figure of ~7.9 mn units by March, 2007, up 11.4% from the previous fiscal figure of ~7.1 mn units. Production during the period reached 10.8 mn units, entailing a demand ratio of ~72%. In terms of sales and market share the major players of the industry are
• Hero Honda ,
• Bajaj Auto and
• TVS Motors.
• Other players include Kinetic Motors, Yamaha Motor and Honda Motorcycle and Scooter India (HMSI).
The composition of the industry consists of motorcycles, scooters and mopeds. Over the past decade, there has been a consumer preferential shift from mopeds to scooters and now motorcycles. On account of the shift, the motorcycle segment dominates the two-wheeler industry with a market share of close to 80%. The motorcycle segment is further sub divided into 3 classes, starting from the entry/economy class (Rs 30,000 – Rs 40,000), executive class (Rs 40,000 – Rs 50,000) and the premium class (>Rs 50,000). The motorcycle segment is primarily led by Hero Honda with a market share of ~59% followed by Bajaj Auto (~18%), HMSI (~9%), TVS Motors (~7%) and Yamaha (~5%). On the other hand the scooter segment is led by HMSI which has a dominant share of ~63% followed by TVS Motors (16%) and Hero Honda (~14%). When it comes to the moped segment, it is primarily dominated by TVS Motors with a market share of ~100%.
Role of Government
The lapses in the system had invited fresh policy options that came into being in late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices (MRTP) and Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign investment respectively. This controlling mechanism over the industry resulted in:
(a) Several firms operating below minimum scale of efficiency;
(b) Under-utilization of capacity; and
(c) Usage of outdated technology. Recognition of the damaging effects of licensing and fettering policies led to initiation of reforms, which ultimately took a more prominent shape with the introduction of the New Economic Policy (NEP) in 1985.
Last year January to March 2007 the beginnings of slackening domestic demand for two- wheelers “because of the sharp tightening of non-food credit by the Reserve Bank of India and all commercial banks and non-banking financing companies”. Throughout 2007-08, the RBI maintained a very tight monetary and credit policy which raised interest rates on consumer loans to exceptionally high levels.
The twin effects of higher interests and lower credit availability hit the two-wheeler industry very badly. Thus, after a decade of spectacular double-digit growth, two-wheelers suddenly faced a slump.
Nature of market
In the initial years, entry of firms, capacity expansion, choice of products including capacity mix and technology, all critical areas of functioning of an industry, were effectively controlled by the State machinery.
However, the major set of reforms was launched in the year 1991 in response to the major macroeconomic crisis faced by the economy. The industrial policies shifted from a regime of regulation and tight control to a more liberalized and competitive era. Two major results of policy changes during these years in two-wheeler industry were that the, weaker players died out giving way to the new entrants and superior products and a sizeable increase in number of brands entered the market that compelled the firms to compete on the basis of product attributes. Finally, the two wheeler industry in the country has been able to witness a proliferation of brands with introduction of new technology as well as increase in number of players. However, with various policy measures undertaken in order to increase the competition, though the degree of concentration has been lessened over time, deregulation of the industry has not really resulted in higher level of competition.
A Growth Perspective
The composition of the two-wheeler industry has witnessed sea changes in the post-reform period. In 1991, the share of scooters was about 50 per cent of the total 2-wheeler demand in the Indian market. Motorcycle and moped had been experiencing almost equal level of shares in the total number of two-wheelers. In 2003-04, the share of motorcycles increased to 78 per cent of the total two-wheelers while the shares of scooters and mopeds declined to the level of 16 and 6 per cent respectively. A clear picture of the motorcycle segment's gaining importance during this period is exhibited by the Figures 1, 2 and 3 depicting total sales, share and annual growth during the period 1993-94 through 2003-04.
5.1 Investment in research and development
• On the two-wheeler industry front, since most manufacturers have a technology tie-up with a foreign major, the incentive to do R&D with the Indian counterpart has increased. For adopting new technologies companies need to invest high.
• With major auto companies spending sizeable amount on product development and in-house R&D expenditure in recent times, deduction of 150% on excise duty exemption to the end consumers allowed on the same will encourage further R&D investments.
5.2 Barriers to entry
Below are the points which play Key roles for new entrants:
• Economies of scale/capital investment
• Cost & resource disadvantage (patents, locked-in partnerships with suppliers/customers)
• Learning & experience curves
• Brand preferences & loyalty
• Access to distribution channels
• Regulatory prices
• Tariffs & international trade restrictions
• Industry attractiveness (growth/profitability
6 Type of consumers who demand it related to major leaders in Indian market
Premium Segment
If we analyze the motorcycle sub-segments then it would be visible that Bajaj Auto has a significant presence in the premium segment with a market share of ~55% followed by Hero Honda (~22%), TVS Motors (~13%) and HMSI (10%).
Executive Segment
Hero Honda dominates this segment with a market share of ~70% followed by Bajaj Auto (20%), HMSI (~6%) and TVS Motors (1%). This segment retrieves higher revenues from the rural areas, which are less dependence on finance; therefore comparatively it is among the best performing segments
YTD.
Economy Segment
This segment is a strong foothold for Bajaj Auto which has a market share of ~45%followed by Hero Honda (~34%) and TVS Motors (~24%). This is the most competitive segment as all the 3players relatively have a higher presence in the same. But this segment continues to be the worst hit due to the credit unavailability and global slowdown. The industry has shown a CAGR of ~15% from FY04-FY07 on account of finance availability from PSU Banks and private banks like ICICI Bank. But from FY08 – FY09 YTD the industry has shown a degrowth as most of the banks reduced their exposure in the auto finance domain given the unfavorable macro economic
situation.
7Conclusion
There is a large untapped market in semi-urban and rural areas of the country. Any strategic planning for the two wheeler industry needs to identify these markets with the help of available statistical techniques. Potential markets can be identified as well as prioritized using these techniques with the help of secondary data on socio-economic parameters. For the two-wheeler industry, it is also important to identify the target groups for various categories of motorcycles and scooters. With the formal introduction of secondhand car market by the reputed car manufacturers and easy loan availability for new as well as used cars, the two-wheeler industry needs to upgrade its market information system to capture the new market and to maintain its already existing markets. Availability of easy credit for two-wheelers in rural and smaller urban areas also requires more focused attention. It is also imperative to initiate measures to make the presence of Indian two-wheeler industry felt in the global market. Adequate incentives for promoting exports and setting up of institutional mechanism such as Automobile Export Promotion Council would be of great help for further surge in demand for the Indian two-wheeler industry.
The feeling of freedom and being one with the Nature comes only from riding a two wheeler. Indians prefer the two wheelers because of their small manageable size, low maintenance, and pricing and easy loan repayments. Indian streets are full of people of all age groups riding a two wheeler. Motorized two wheelers are seen as a symbol of status by the populace. Thus, in India, we would see swanky four wheels jostling with our ever reliable and sturdy steed: the 2 wheeler
Recent Economic Developments
India is the 2nd largest two-wheeler market in the world with a size of over Rs 100,000 mn. Steps like abolition of licensing, removal of quantitative restrictions and initiatives to bring the policy framework in consonance with WTO requirements have set the industry in a progressive track. Removal of the restrictive environment has helped restructuring, and enabled industry to absorb new technologies, aligning itself with the global development and also to realize its potential in the country. The liberalization policies have led to continuous increase in competition which has ultimately resulted in modernization in line with the global standards as well as in substantial cut in prices. Aggressive marketing by the auto finance companies have also played a significant role in boosting automobile demand, especially from the population in the middle income group.
The total sale of two wheelers in India has touched a figure of ~7.9 mn units by March, 2007, up 11.4% from the previous fiscal figure of ~7.1 mn units. Production during the period reached 10.8 mn units, entailing a demand ratio of ~72%. In terms of sales and market share the major players of the industry are
• Hero Honda ,
• Bajaj Auto and
• TVS Motors.
• Other players include Kinetic Motors, Yamaha Motor and Honda Motorcycle and Scooter India (HMSI).
The composition of the industry consists of motorcycles, scooters and mopeds. Over the past decade, there has been a consumer preferential shift from mopeds to scooters and now motorcycles. On account of the shift, the motorcycle segment dominates the two-wheeler industry with a market share of close to 80%. The motorcycle segment is further sub divided into 3 classes, starting from the entry/economy class (Rs 30,000 – Rs 40,000), executive class (Rs 40,000 – Rs 50,000) and the premium class (>Rs 50,000). The motorcycle segment is primarily led by Hero Honda with a market share of ~59% followed by Bajaj Auto (~18%), HMSI (~9%), TVS Motors (~7%) and Yamaha (~5%). On the other hand the scooter segment is led by HMSI which has a dominant share of ~63% followed by TVS Motors (16%) and Hero Honda (~14%). When it comes to the moped segment, it is primarily dominated by TVS Motors with a market share of ~100%.
Role of Government
The lapses in the system had invited fresh policy options that came into being in late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices (MRTP) and Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign investment respectively. This controlling mechanism over the industry resulted in:
(a) Several firms operating below minimum scale of efficiency;
(b) Under-utilization of capacity; and
(c) Usage of outdated technology. Recognition of the damaging effects of licensing and fettering policies led to initiation of reforms, which ultimately took a more prominent shape with the introduction of the New Economic Policy (NEP) in 1985.
Last year January to March 2007 the beginnings of slackening domestic demand for two- wheelers “because of the sharp tightening of non-food credit by the Reserve Bank of India and all commercial banks and non-banking financing companies”. Throughout 2007-08, the RBI maintained a very tight monetary and credit policy which raised interest rates on consumer loans to exceptionally high levels.
The twin effects of higher interests and lower credit availability hit the two-wheeler industry very badly. Thus, after a decade of spectacular double-digit growth, two-wheelers suddenly faced a slump.
Nature of market
In the initial years, entry of firms, capacity expansion, choice of products including capacity mix and technology, all critical areas of functioning of an industry, were effectively controlled by the State machinery.
However, the major set of reforms was launched in the year 1991 in response to the major macroeconomic crisis faced by the economy. The industrial policies shifted from a regime of regulation and tight control to a more liberalized and competitive era. Two major results of policy changes during these years in two-wheeler industry were that the, weaker players died out giving way to the new entrants and superior products and a sizeable increase in number of brands entered the market that compelled the firms to compete on the basis of product attributes. Finally, the two wheeler industry in the country has been able to witness a proliferation of brands with introduction of new technology as well as increase in number of players. However, with various policy measures undertaken in order to increase the competition, though the degree of concentration has been lessened over time, deregulation of the industry has not really resulted in higher level of competition.
A Growth Perspective
The composition of the two-wheeler industry has witnessed sea changes in the post-reform period. In 1991, the share of scooters was about 50 per cent of the total 2-wheeler demand in the Indian market. Motorcycle and moped had been experiencing almost equal level of shares in the total number of two-wheelers. In 2003-04, the share of motorcycles increased to 78 per cent of the total two-wheelers while the shares of scooters and mopeds declined to the level of 16 and 6 per cent respectively. A clear picture of the motorcycle segment's gaining importance during this period is exhibited by the Figures 1, 2 and 3 depicting total sales, share and annual growth during the period 1993-94 through 2003-04.
5.1 Investment in research and development
• On the two-wheeler industry front, since most manufacturers have a technology tie-up with a foreign major, the incentive to do R&D with the Indian counterpart has increased. For adopting new technologies companies need to invest high.
• With major auto companies spending sizeable amount on product development and in-house R&D expenditure in recent times, deduction of 150% on excise duty exemption to the end consumers allowed on the same will encourage further R&D investments.
5.2 Barriers to entry
Below are the points which play Key roles for new entrants:
• Economies of scale/capital investment
• Cost & resource disadvantage (patents, locked-in partnerships with suppliers/customers)
• Learning & experience curves
• Brand preferences & loyalty
• Access to distribution channels
• Regulatory prices
• Tariffs & international trade restrictions
• Industry attractiveness (growth/profitability
6 Type of consumers who demand it related to major leaders in Indian market
Premium Segment
If we analyze the motorcycle sub-segments then it would be visible that Bajaj Auto has a significant presence in the premium segment with a market share of ~55% followed by Hero Honda (~22%), TVS Motors (~13%) and HMSI (10%).
Executive Segment
Hero Honda dominates this segment with a market share of ~70% followed by Bajaj Auto (20%), HMSI (~6%) and TVS Motors (1%). This segment retrieves higher revenues from the rural areas, which are less dependence on finance; therefore comparatively it is among the best performing segments
YTD.
Economy Segment
This segment is a strong foothold for Bajaj Auto which has a market share of ~45%followed by Hero Honda (~34%) and TVS Motors (~24%). This is the most competitive segment as all the 3players relatively have a higher presence in the same. But this segment continues to be the worst hit due to the credit unavailability and global slowdown. The industry has shown a CAGR of ~15% from FY04-FY07 on account of finance availability from PSU Banks and private banks like ICICI Bank. But from FY08 – FY09 YTD the industry has shown a degrowth as most of the banks reduced their exposure in the auto finance domain given the unfavorable macro economic
situation.
7Conclusion
There is a large untapped market in semi-urban and rural areas of the country. Any strategic planning for the two wheeler industry needs to identify these markets with the help of available statistical techniques. Potential markets can be identified as well as prioritized using these techniques with the help of secondary data on socio-economic parameters. For the two-wheeler industry, it is also important to identify the target groups for various categories of motorcycles and scooters. With the formal introduction of secondhand car market by the reputed car manufacturers and easy loan availability for new as well as used cars, the two-wheeler industry needs to upgrade its market information system to capture the new market and to maintain its already existing markets. Availability of easy credit for two-wheelers in rural and smaller urban areas also requires more focused attention. It is also imperative to initiate measures to make the presence of Indian two-wheeler industry felt in the global market. Adequate incentives for promoting exports and setting up of institutional mechanism such as Automobile Export Promotion Council would be of great help for further surge in demand for the Indian two-wheeler industry.