Whenever the alleged monopoly of the three large car companies in the country comes under discussion, critics often cite the case of the domestic motorcycle industry as an alternative path. Over the years, the motorcycle industry has been quoted as an example where the hegemony of one or two companies was broken with the advent of domestically assembled bikes based on inputs sourced from China.
The well-trodden argument goes something like this: a 70cc motorcycle by Honda used to cost about Rs70,000 in the early 2000s. Then a bunch of companies propped up and began to produce bikes at half of that price tag. As a result, the quantum of two-wheeler sales leaped and prices fell. Arguably, this establishes the efficacy of new players in the industry so that competition grows and consumers benefit.
However, more recent trends in the motorcycle market suggest that the situation so proudly highlighted in previous years; has been turned on its head.
At the beginning of this year, BR Research questioned "Have two-wheeler sales peaked" in an article published on January 1, 2015. Despite a sizeable drop in inflation and much lower interest rates since then, sales of motorcycles and three-wheelers as reported by PAMA, are relatively muted. Given their innovation averse nature, domestic manufacturers have not managed to secure any significant export markets, so their fates appear tangled with the choppy domestic market.
Getting back to the discussion at hand, the PAMA data reveals that whatever market share these cheaper motorcycles had wrestled away from Atlas Honda in previous years, has been retaken by the undisputed giant of two wheelers. Moreover, some of the prominent contenders of yesteryears including Sohrab, Habib and Hero have either been knocked out, or forced to scale down their ambitions.
Some observers suggest that a faltering rural economy has taken a toll on some of the manufacturers of cheaper motorcycles. The explanation goes that bikes priced around the Rs38,000-Rs40,000 range are most in-demand in rural areas while urban buyers prefer more powerful engines such as Suzuki and of course Honda. As commodity price cycle hits its bottom, the purchasing power of the buyers that had propelled sales of cheaper bikes, has been all but evaporated.
At least some of the credit for its re-emergence remains with Atlas Honda. In December 2013, the company shared its expansion plans with BR Research. At that time, the company had expressed confidence that its brand muscle and product quality would go a long way to ensure its strong market share.
It is mention worthy here that PAMA data does not represent all sales of motorcycles and three-wheelers. However, its numbers are telling of trends in the industry. And the trends suggest that while Atlas Honda has re-emerged stronger than ever before, many of the erstwhile contenders have been sent packing. Preliminary data on cotton harvest suggests that farmers woes are anything but over. Although car sales have not faltered yet, their sales are based on bookings and may show some dent after a lag. Still it is inevitable that any further hit to the rural economy may be a death knell for manufacturers of cheap motorcycles.
In subsequent columns BR Research will attempt to shed light on these developments.
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