Car sales might have slowed down, but two-wheelers soar

Even while car sales falter, two-wheeler sales continue to defy the downward pull of higher interest rates. Indeed, two-wheeler companies are making plans for further expansion even as as car and utility vehicle companies such as Maruti and Tata Motors downgrade their assessments for this year’s sales growth.

A report in The Economic Times on Monday said Honda Motor, the world’s biggest motorcycle maker, plans to aggressively promote 100-cc economy bikes to India’s rural consumers. The move represents a strategic change for Honda, which has, so far, concentrated on selling to buyers in cities and big towns.

Honda, which is betting big on rural growth, sold 1.5 million two-wheelers in India last year, and is targeting sales of 2.1 million units in the current financial year (April to March). In pursuit of that growth, a recent Bloomberg report noted that the company plans to expand its network of dealers and service outlets by 25 percent.

In addition, Honda, which can manufacture 1.6 million motorcycles and scooters in India a year at its factory in Manesar near New Delhi, plans to double the capacity of its second plant to 1.2 million by the end of this fiscal year. When its third manufacturing facility is completed, the company will be able to produce four million units a year, according to the Bloomberg report.

Last year, the Japanese company ended its long-standing partnership with Hero Motorcorp to focus on its wholly-owned subsidiary in India.

Sales of 100 cc motorcycles account for about 50 percent of total motorbike sales in the country. Hero is the leader in this still-going-strong market, accounting for about 54 percent of sales in the year ending March 31, according to the Society of Indian Automobile Manufacturers (SIAM). Bajaj Auto is the second-biggest manufacturer.

In July, Hero’s and Bajaj Auto’s sales jumped by 14-15 percent each, while Honda’s sales advanced by about 10 percent. TVS Motors, Mahindra Two Wheeler and Scooter India also made good strides.

Overall, motorcycle sales grew by 11 percent in July to 785,278 units from 710,621 units a year ago. And total two-wheeler sales increased 13 percent to 1,056,906 units, from 938,514 units in July 2010, according to SIAM. That’s in sharp contrast to passenger car sales, which crashed 16 percent in the same period as higher interest rates and high fuel prices kept consumers away from showrooms.

Unlike passenger car buyers, experts say buyers of two-wheelers do not depend heavily on bank loans to fund their purchases. In addition,two-wheelers are more dependent on rural demand, which has been buoyant because of higher farm produce prices.

“Strong rural demand and low dependence on bank financing would keep momentum intact in two-wheelers,” notes a recent IDFC Securities report on the automobile sector.“With higher sales in rural markets, low dependence on bank financing, smaller ticket size, favorable demographics (youth population and working women) and fueleconomics, two-wheelers remain largely insulated from macroeconomic shocks.”

Noting the impact of rural demand, the report added: “With rural India accounting for a larger proportion of the business, two-wheelers show a positive correlation to food inflation (agri-income). We expect two-wheeler sales to be at 14 percent in the year ending March 2012, with motorcycles growing by 13 percent and scooters by 17 percent. "

For the moment, investors betting on two wheels seem better placed to benefit than those betting on four.