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Home / Auto News / How two-wheeler dreams died in the countryside

Industry estimates suggest two-wheeler sales for fiscal year 2021-22 (FY22) will close out at 14.5 million units, the lowest volume in almost a decade. This betrays a deep distress in incomes of rural households. Mint explains the fault lines:

Why are two-wheeler sales falling?

Rural demand contributes 50-60% of two-wheeler sales in the commuter segment. Price increases, rising fuel prices and unseasonal rains leading to poor crop realizations have hit the rural population. The second wave of the coronavirus pandemic also led to significant health expenses for poorer households, resulting in poor liquidity. While urban India has been more successful in regaining pre-covid livelihoods, rural residents, daily wage workers and those in the unorganized sectors have fared much worse, and have deferred discretionary spending on vehicles.

What about urban demand?

In urban areas, sales of auto-mobiles are largely discretionary. Customers buy a scooter, bike, or a car to either upgrade to a better model or add an additional vehicle to the household. Demand for premium motorcycles has held up well and even grown: They are largely sold in metros or tier-1 and tier-II towns with people more resilient to income shocks. Moreover, premium motorcycles only account for about 20% of the total two-wheeler market. This is also evident in bookings for passenger cars, where customers are placing bookings with multiple dealers for new models despite consistent price hikes.

Demand slump
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Demand slump

What about electric two-wheeler launches?

Sales of electric two-wheelers are climbing steadily, and accounted for over 2% of total two-wheeler registrations in January. While many new manufacturers have announced new launches, customers are in a wait-and-watch mode. The lack of dedicated parking spots and a comprehensive vehicle range is deterring buyers.

What are firms doing about poor demand?

Automakers have turned their focus outwards—demand for two-wheelers is robust in other markets in the Asia Pacific region. Over 50% of Bajaj Auto’s revenue comes from exports of two-wheelers. TVS Motor Co. Ltd and Hero Motocorp Ltd are also ramping up exports. Most two-wheeler makers posted growth in export volumes in Q3. Auto dealers are saddled with high inventories running into 25-30 days. While manufacturers will cut production, a focus on exports will be a key strategy to ride out this slump.

How long can this slump last?

Two-wheeler registration data revealed an almost 13.5% decline in retail sales in January. Industry experts expect the decline to continue in the months to come in the absence of any immediate triggers for fresh buying. However, the wedding season during April-June in North India is expected to generate some demand. The outlook for FY23 is largely contingent on how fast sentiment in rural pockets changes. Most analysts expect the sector to be back on a growth path by the end of FY23.

 

 

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