There are many industries in an economy that undergo ups and downs in a cycle. Two wheeler manufacturing in the country is no exception. In the past with the advent of two stroke engines, the motorcycle industry witnessed an unprecedented growth and made India world’s second largest producer of bikes after China. As the industry vroomed, manufacturers of scooters took a beating. But now the cycle seems to have turned full circle as sales of motorcycles have slowed down since the beginning of 2007, while sales of scooters, the un-geared variety, are on the upswing.

Monthly sales of motorcycles, which was hovering around 560,000 in January 2007 has gone downhill to 418,000 in August 2007 - a drop of 25 per cent in just 8 months. The cumulative sales in January-August 2007 at 3766,000 is 7.5 per cent lower than 4070,000 sold in the same period last year.   

Brave face   
But despite the troubled times they are in, motorcycle manufacturers are still putting up a brave face. Ask two-wheeler industry leader in Rajiv Bajaj, Managing Director of Bajaj Auto, who was swift in downplaying the slowdown saying: “As such, there is no de-growth in the industry, but only a segment (read 100cc bikes) sees a decline which the market ascribes to various factors like interest rate hike, tighter financing norms and all sort of reasons.”

Bajaj Auto MD Rajiv maintains that the decline is specific to 100cc bike segment for which the industry offers all kind of reasons. “The Actual reason is that the customers have shifted preference from 100cc to higher CC bikes,” he said pointing out that the 100cc bike segment is on the verge of extinction.
“It may now sound funny, but look at what happened to geared scooters segment, it hardly exists. If we had said 15 years ago, there won’t be any geared scooters in the future, people would have laughed at us then. But now it is a reality,” said Bajaj. 

The shift within
There is enough data to prove Bajaj right. According to the data gathered from Society of Indian Automobile Manufacturers (SIAM), sales of motorcycles below 125cc (this is mainly 100cc) during April to August 2007 was 1620,528 or 20 per cent lower than same period previous year. All manufacturers, including the leader Hero Honda, reported lower sales in this segment. While TVS reported 40 per cent drop, Yamaha reported 46 per cent loss and Bajaj reported 38 per cent drop. The drop in sales for Hero Honda was six per cent.

In contrast, the sales of higher powered bikes with newer technologies saw a sharp 10 per cent rise. The industry, during April-August period sold 538,663 motorcycles with engine capacity above 125cc but less than 250cc, as against 490,289 sold in the previous year.

This category now accounts for 26 per cent of the motorcycle market against 20 per cent last year. Says a marketing executive in TVS Motors who did not want to be quoted: “We were totally surprised by the sudden change in consumer preference. People now want more power but not ready to compromise on fuel efficiency.”

Technology bias
There lies the key for the bikers psyche. Interestingly, the higher-powered bikes did well because of newer technology that delivers the power at same 100cc fuel efficiency. In fact, two new 125cc motorcycles recently launched in the market by leading players claim mileage of 100 km per liter of petrol, better than 80 km a liter that made 100cc bikes legendary. Surely, those who could read the technology shift early did better. Hero Honda, for example, sold 62, 494 higher-powered bikes in April-August period which was 182 per cent more than last year. Another company, Honda Motorcycles and Scooters India (HMSI), sold 98,423 bikes in this category, a jump of 72 per cent over last year. Suzuki Motorcycles, another Japanese company, sold 24,283 - 26 per cent more than last year. Even the good old Hamara Bajaj, who is a leader in this category, sold 313,079 higher-powered bikes, 2 per cent more than last year. The two recent Japanese entrants, HMSI and Suzuki, incidentally were convinced about technology leap that they did not have any bike below 125cc in their portfolio.

TVS and Yamaha, who failed to offer new technology suffered the most. TVS’s sales in higher-powered category halved to 30,091 and Yamaha’s to 10,293, just about half of last year.

Overall slump
Despite the 125cc plus category doing well, overall sales of motorcycles dwindled for all manufacturers except for HMSI and Suzuki. This is because slow-moving bikes below 125cc still account for 74 per cent of the market. Thus total sales of motorcycles by Bajaj Auto in April-July 2007 at 617,165 was 22 per cent lower than same period last year. Hero Honda sold 1171,524 (-2.4 per cent), TVS 201,536 (-42 per cent) and Yamaha 45,012 (-53 percent). The industry as a whole sold 2172,474 bikes which was 14 per cent lower.

Reverse trend
The situation in the scooter market, however, is exactly opposite. Riding on superior automatic transmission technology that made gears redundant, monthly sales of scooters have risen from 84,590 in January 2007 to 91,150 in August.

The cumulative sales in January-August 2007 at 690,190 was 15 per cent higher than last year. Here again, the youngest player and technology leader HMSI has dislodged the old stalwarts like Baja Auto and Kinetic Motor by occupying 59 per cent of the market. HMSI’s scooter sales at 258,073 during April-August 2007 grew 33 per cent. The next big player is TVS which sold 114,256 scooters.

Muscle power
Does these mean the below 125cc (read100cc) segment will die a natural death? Hero Honda does not think so. Its latest sales figure of 214,362 for August 2007 shows that the company has bounced back in this category by registering 9 per cent monthly growth. A spokesman from the company points out that the 100cc segment, which constitutes 95 per cent of its sales, will remain a significant segment. “We believe that it has played an important role in developing the motorcycle market and will continue to do so in future,” he said. 

Revving up
Unfazed by the slowdown motorcycle manufacturers are working out different strategies to revive sales. Bajaj and TVS are moving away from the low-margin 100cc segment and launching several new models in 125cc and above categories.

But Hero Honda, whose main stay is 100cc, is bringing in new variants and models to make its portfolio wider and deeper. Since one of the reasons behind the slowdown is high cost of finance, thanks to banks frequently raising interest rates, many players are offering subsidised interest. Hero Honda, for example, has just offered finance scheme at 3 per cent for one of its popular model.

And as for Yamaha, it is unveiling its superbikes MT01 and YZF R1 in November 2007 to make its mark in the Indian market. Besides, it is also foraying into the gearless scooters segment. 

With the festival season round the corner, A Joseph, Vice-President, R&D, Bajaj Auto says, “The customer will make the purchase decision soon and we have an exciting product (XCD 125cc bike) lined up for him.”

Bajaj’s offer of fuel mileage at 109 kmpl at 100cc price will be matched by TVS’ offer of  “Flame” bike in the 125cc segment with  matching features. Anil Dua, VP-Sales & Marketing, Hero Honda is also confident, “With the upcoming festival round the corner, we expect sales to improve.” With deep pockets and large advertisement spend major players in the industry are certainly bullish that motorcycles will zoom again.