Honda Motorcycle and Scooter India Pvt. Ltd (HMSI) has implemented a 15-20% cut in June quarter two-wheeler production—the sharpest reduction since it started operations about 18 years ago—because of weak demand for scooters and a squeeze on automobile financing.
At least four suppliers to HMSI, India’s largest scooter maker, confirmed the decision of the two-wheeler unit of Japan’s Honda Motor Co.
“HMSI shares an annual vehicle production manual with its suppliers. The document lists out its production forecasts for the said period. It is a three-month plan that we are given," said the first supplier, requesting anonymity.
This is also the first time HMSI has cut production in the fiscal first quarter, since it began producing scooters in 2001-02, the person said.
“This can be attributed to their over-reliance on scooters," the person said, underlining the reasons for Honda’s move. “Secondly, the company does not have its own financial arm in India to finance its own scooters and motorcycles like its rivals Hero MotoCorp and Bajaj Auto do. Availability of attractive financing schemes is an influential factor in boosting demand for two-wheelers in the domestic market."
Scooters comprised 66% of HMSI’s total domestic production of 5.89 million units in FY2018-19, a 4.85% decline from that of the previous year. Motorcycles made up the remainder of the company’s production.
Scooter demand has been hit more than motorcycles and mopeds in the just-ended fiscal, according to data issued last week by the Society of Indian Automobile Manufacturers. Scooters are used mostly in urban regions across India, where customer sentiment has been dampened by an increase in the overall cost of ownership, including volatile fuel prices, higher interest rates and a rise in upfront insurance cost.
Domestic scooter dispatches fell 0.27% last fiscal from that in the previous year, although motorcycles and mopeds posted a 7.76% and 2.41% increase, respectively.
In an emailed response to queries, HMSI said “increased insurance premium in September 2018 dampened the festival sentiments, and pre-festival stock buildup was converted into high inventories for the two-wheeler industry. Recognizing this situation early, we realigned our supply with the domestic demand to correct inventories and support our business partners".
The company said that “green shoots of demand pickup are not visible" and it expects “a tough quarter ahead" as product prices will rise due to mandatory installation of combined braking system and anti-lock braking system in two-wheelers from 1 April, in addition to the ongoing general elections.