3.01. INTRODUCTION

The previous chapter could highlight the importance of consumer behavior and

consumer behavior models to the marketer. The main purpose of this chapter is to bring

out a clear picture of the life cycle of two-wheeler industry in India as well as in Andhra

Pradesh state and in the study area, Nellore district. Automobile industry is one of the

largest industries in the global market. Being the leader in the process and product

technologies in the manufacturing sector, it has been recognized as one of the drivers of

economic growth. During the last decade well directed efforts have been made to

provide a new look into the automobile policy for realizing the sectors 1 1 1 potential for

the economy. Steps like abolishing of licensing, removal of quantitative restrictions and

initiatives like bringing up policy framework in consonance with WTO (World Trade

Organization) requirements have set the industry on the progressive track. Removal of

the restrictive environment has helped restructuring and enabled industry to absorb new

technologies, aligning itself with the global development and also to realize its potential

in the country. The liberalization policies have led to continuous increase in

competition, which has ultimately resulted in modernization in line with the global

standards as well as in substantial cut in prices. Aggressive marketing by the automobile

finance companies have played a significant role in boosting the demand for two-

wheelers especially from the population of the middle income group. '

India has become world number two in two wheeler manufacturing. Because two-

wheeler is a middle class man's vehicle offering an affordable solution for personal

mobility and a status symbol. Two wheeler has become an indispensable part of our

lives, the inadequate public transportation, and its inefficient operation, high cost of taxi

transportation and miserable road infrastructure lead the middle class man with little

choice but to go for a two wheeler. The automobile industry in general and two wheeler

industry in particular has shown a tremendous growth over the recent years, and these

two wheeled machines provide us faster, cheaper and more convenient mobility to

attend work related daily activities.

3.02. Two-Wheeler Industry

Its origin and growth: The Britannica Encyclopedia describes a motorcycle as a

bicycle or tricycle propelled by an internal-combustion engine (or) by an electric

engine. The motors on mini bikes, scooters, and mopeds, or motorized velacipedes, are

usually air-cooled and range from 25 to 250 cubic centimeter (cc) in displacement; the

multiple-cylinder motorcycles have displacements of more than 1,300 cubic

centimeters. The automobile was the reply to the 19th-century dream of self-propelling

the horse-drawn carriage. The first commercial design was a three-wheeler built by

Edward Butler in Great Britain in 1884. This employed a horizontal single-cylinder

gasoline engine mounted between two steerable Eront wheels and connected by a drive

chain to the rear wheel.

The 1900s saw the conversion of many bicycles, or pedal cycles by adding small,

centrally mounted spark ignition engines. Then the need for reliable constructions was

felt. This led to road trial tests and competition between manufacturers. Such was the

proving ground for many new ideas from early two-stroke-cycle designs to

supercharged, multi valve engines mounted on aerodynamic, carbon-fiber reinforced

bodywork.

Invention of Two Wheelers

The invention of the first two-wheeler is a much-debated issue. "Who invented the first

motorcycle?" may seem like a simple question, but the answer is quite complicated.

Two-wheelers owe their descent to the "safety" bicycle, i.e., bicycles with front and rear

wheels of the same size, with a pedal crank mechanism to drive the rear wheel. Those

bicycles, in turn descended from high-wheel bicycles. The high-wheelers descended

from an early type of pushbike, without pedals, propelled by the rider's feet pushing

against the ground. These appeared around 1800, used iron-banded wagon wheels, and

were called "bone-crushers," both for their jarring ride, and their tendency to toss their

riders. Gottlieb Daimler is credited with building the fmt motorcycle in 1885, one

wheel in the front and one in the back, with a chain driving the rear wheel.

Origin of Motor-cycle

Motorcycle - the name is evolved from motorized cycle. A motorcycle has an engine,

wheels and chain exposed. Moreover, it is chain driven. Two-stroke motorcycles are

positioned as power bikes by making use of their high power delivery to cater to the

young generation. Four-stroke motorcycle is positioned as fuel-efficient and

environment friendly vehicle.

The first practical engines and motorcycles were designed by the French and Belgians,

followed by British, German, Italian, and American makers. The popularity of the

vehicle grew, especially after 19 10. During World War I the motorcycle was used by all

branches of the armed forces in Europe, principally for dispatching. Alter the war it

enjoyed a sport vogue until the Great Depression began in 1929. After World War I1 a

revival of interest in motorcycles lasted into the late 20th centwy, with the vehicle being

used for high-speed touring and sport competitions.

In 1895, the French firm of De Dion-Button built an engine that was to make the mass

production and common use of motorcycles possible. It was a small, light, high rewing

four-stroke single cylinder engine, used battery-and-coil ignition, doing away with the

troublesome hot-tube. Bore and stroke figures of 50mm by 70mm gave a displacement

of 138cc.

The 1950s saw a new type of light motorcycle, the Moped, originated in Germany as a

50-cubic-centimetre machine with simple controls and low initial cost. Mopeds - the

motorcycle with pedals is the entry level two-wheeler. Mopeds are the cheapest

category of two wheelers, having low power compared to scooters and motorcycles.

Mopeds were most popular amongst small business people, ladies and low income

households. These vehicles cost in the range of Rs 12,000 and onwards. Mopeds were

predominantly used for small distance transportation.

Most of the development during this earliest of era concentrated on three and four-

wheeled designs, since it was complex enough to get the machines ~ i n g without

having to worry about them falling over. The Indo-Japanese motorcycles have

advantage of better fbel efficiency, more power, better road grip, low emissions and are

lightweight compared to scooters. Usually, motorcycles are the costliest among two-

wheelers. Two wheelers are also used as the second vehicle in the family along with car

or scooter/motorcycle.

3.03. Industry development in India

The Indian two-wheeler industry made a small beginning in the early 50s when

Automobile Products of India (API) started manufacturing scooters in the country.

Until 1958, API and Enfield were the sole producers. In 1948; Bajaj Auto began trading

in imported Vespa scooters and three-wheelers. Finally, in 1960, it set up a shop to

manufacture them in technical collaboration with Piaggio of Italy. In the initial stages,

the scooter segment was dominated by API; it was later overtaken by Bajaj Auto.

Although various government and private enterprises entered the Eray for scooters, the

only player that has lasted till today is LML.

Under the regulated regime, foreign companies were not allowed to operate in India. It

was a complete seller market with the waiting period for getting a scooter from Bajaj

Auto being as high as 12 years. The motorcycles segment was no different, with only

three manufacturers viz Enfield, Ideal Jawa and Escorts. While ~nfield bullet was a

four-stroke bike, Jawa and the Rajdoot were two-stroke bikes. The motorcycle segment

was initially dominated by Enfield 350cc bikes and Escorts 175cc bikes.

The two-wheeler market was opened to foreign competition in the mid-1980'. The first

Japanese motorcycles were introduced in the early eighties, TVS Suzuki and Hero

Honda brought in the first two-stroke and four-stroke engine motorcycles respectively.

Then market leaders - Escorts and Enfield - were caught unaware by the onslaught of

the lOOcc bikes of the four Indo-Japanese joint ventures of Hero Honda, WS Suzuki,

Bajaj-Kawasaki, and Escorts Yamaha. With the availability of fuel efficient low power

bikes, demand swelled, resulting in Hero Honda - then the only producer of four stroke

bikes ( 100cc category), gaining the top slot.

The industry had a smooth ride in the 195O3, 60' and 7 0 h h e n the Government

prohibited new entries and strictly controlled capacity expansion. The industry saw a

sudden growth in the 1980S. The industry witnessed a steady sales growth of 14%

leading to a peak volume of 1.9rnn vehicles in 1990.

The entry of Kinetic Honda in mid-eighties with a variometric scooter helped in

providing ease of use to the scooter owners. This helped in inducing youngsters and

working women, towards buying scooters, who were earlier, inclined towards moped

purchases. In the 90s, this trend was reversed with the introduction of scooterettes. In

line with this, the scooter segment has consistently lost its part of the market share in the

two-wheeler market.

In 1990, the entire automobile industry saw a drastic fall in demand. This resulted in a

decline of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn

vehicles. Barring Hero Honda, all the major producers suffered from recession in FY93

and FY94. Hero Honda showed a marginal decline in 1992.The reasons for recession in

the sector were the incessant rise in fuel prices, high input costs and reduced purchasing

power due to significant rise in general price level and credit crunch in consumer

financing. Factors like increased production in 1992, due to new entrants coupled with

the recession in the industry resulted in companies reporting losses.

3.04. Motorcycles in India

Motor cycle: A motor cycle has an engine, wheels and chain exposed or covered. It is

chain driven; two stroke motor cycles are positioned as power bikes by making use of

their high power delivery to cater the young generation. Four stroke motor cycles is

positioned as fuel efficient and environment friendly vehicle.

The motor cycle is being increasingly used by youngsters/bachelors in urban areas and

by rural folk as a sturdy means of personal transportation, bigger wheels, better road

grip, higher ground clearance, power, fuel efficiency, and low maintenaqce cost are the

major attractions of this segment. It can be classified into Japanese collaboration and

indigenously made motor cycle segments. The former consists of models manufactured

out of Japanese technology while the later category consists of high-powered bikes of

the '~ajdoot' (175cc) and 'Bullet' (350cc).

In 1955, the Indian government needed sturdy and reliable motorcycles for its Army and

police to patrol the rugged border highways. The first batch of 350cc Bullets from the

Royal Enfield Company of UK were received and assembled at Chennai.

The four stroke engine of the motorcycles is fuel efficient and is the main reason for the

growth of motorcycle segment In India. The motorcycle market share is about 81.5% of

the total two wheeler market in India. Three-fourths of the total exports in the two

wheeler automobile industry are made in the motorcycle segment. India is the second

largest producer and seller of two-wheelers in the world. It stands next only to Japan

and China in terms of the number of two-wheelers produced and domestic sales

respectively. This distinction was achieved due to variety of reasons like restrictive

policy followed by the Government of India towards the passenger car industry, rising

demand for personal transport, inefficiency in the public transportation system etc.

In the last few years, the motor cycle segment witnessed the launch of several new

models from the existing players, majority of these have been in the 4lstroke engine

category for which the technology has come from Japanese parents. Increasing product

differentiation and competition has resulted in new-sub segments emerging. The four

stroke motor cycles caused a dent in the demand for Zstroke motor cycles which is

expected to go out from the market because of low fuel efficiency and because of

emission norms. Taking in to consideration the limited availability of mass

transportation in rural and semi-urban areas and the suitability of motor cycles to these

conditions, we expect the segment to continue to grow at 24% YOY growth. The 4-

stroke engine of the motor cycle is he1 efficient and is the main reason for the growth

of motor cycle segment in India. As stated earlier the motor cycle market share is about

82% of the total two-wheeler market in India, and 314 of the total exports in the two

wheeler automobile industry are made in the motor cycle segment. And exports are

made mainly to south-east Asian and SAARC nations. The following table 3.01

highlights the growth of motorcycle sales fiom 1992-93 to 2006-07.

Table: 3.01 Growth of Motor Cycle sales in India since 1992-93 to 2006-07

Year

1992-93 1993-94

During 1992-93 the number of motorcycles sold in India was 4, 28,1.18 units fiom

-

2005-06 2006-07

thereafter the sales had increased till 2000-01 and there was a sudden spurt in sales in

Sales of Motor Bikes in India

4,28,118 3.79.060

2001-02. At the end of 2006-07 the number of units sold was 70, 99,553. It is evident

Percent growth

----- -1 1.46

(Source: www.SIAM.com)

62,01,214 70,99,553

fiom the below chart 3.01 that the motorcycle sales increased from 1992-93 to 2000-01

19.39 14.49

with a linear growth of 1.89 percent (with a cumulative growth of 21.73 percent)

thereafter from 2001-02 the sales growth rate marginally decreased and continued to

increase with a linear growth rate of 1.83 percent (with a CGR of 18.87 porccnt) up to

2006-07. The following charts 3.024 3.02b and 3.02~ indicate the growth rates in terms

of both linear and cumulative percentages as shown in tht cham.

Chart 3.01: Bar diagram indicating the growth of motor cycle mkr in India

Chart 3 .02~ Growth of Motor Cyde mles in India since 1992-93 to 2000-01

83

Chart 3.02b: Growth of Motor Cycle sales in India since 2001-02 to 2006-07

Chart 3.02~: Growth of Motor Cycle sales in India since 1992-93 to 2006-07

Hypothesis 1: The sales of motor bikes are not decreasing proportionately with that of mopeds, and scooters in India.

Table: 3.01a Summary of growth rates of two wheeler sales in India

Inference: It is seen from the above table 3.01a that the sales of motorcycles registered

positive growth irrespective of the sales of scooters and mopeds. So the sales of scooters

and mopeds are not proportionate to the sales of motorcycles in India. Hence, the

hypothesis is accepted and can be said that there is no significant relation between the

sales of motorcycles and the sales of mopeds and scooters.

Period

1992-93 to 1997-98

1998-99 to 2000-0 1

2001-02 to 2006-07

3.05. Motorcycle companies and their models

The following table highlights the number of motorcycle companies along with their

models up to the year 2008. The table 3.02 indicates that there are nine major

motorcycle companies, though there are other companies viz: Yo motors, and Kanda

motors but they are not so popular in the market.

Growth rate (CGR)

Motorcycles

21.73

18.87

Mopeds

I 1.97

5.78

-4.53

Scooters

13.60

-10.79

1.62

Table: 3.02 Motorcycle Companies and Their Models in India (As on march 2008)

I I I I I

1 9 1 Hero Honda CBZ Xtreme 1 I 1

G HONDA I I I H 1 SUZLJKI MOTORS I I I YAMAHA MOTORS MOTORS

7 I

TVS Apache RTR I

1 2 7 -

-.-- - ---7

Honda Shine Honda Unicorn Honda stunner

6 7

- - - - - - - - - - . - - - - -

Type JA YamahaFZ Yamaha Fazer

1 2

(Source: Over Drive, Monthly magazine, March-2008)

4 5

Suzuki Samurai Suzuki Heat Suzuki Zeus

Yamaha Libero G5 Yamaha Gladiator

1 2 3

Yarnaha Crux Yamaha Enticer Y amaha Gladiator

Market share of Motorcycles (as on 2006-07)

The motorcycle segment is dominated by four players viz Hero Honda, TVS Suzuki,

Bajaj Auto Ltd and Escorts Yamaha. The market share of each of the players is as given

below. Hero Honda commands a market share of 37.3 percent, followed by Bajaj Auto

with a market share of 19.7 percent, TVS motors stood in third position with a market

share of about 18.4 percent. Escorts Yamaha, Others, and Honda motors stood in fourth,

fifth, and sixth position, with market shares of 9.2,7.4 and 6.2 percent respectively.

Nearly 80% of the motorcycle sales are of Japanese origin with the rest coming from

Indian motor cycle companies. The Indo-Japanese segment is catered by three to five

models from each of the players namely BAL, TVS, Hero Honda and Escorts Yamaha.

But majority of the sales is in 100cc, 125cc, and 150cc vehicles category. The Japanese

ranges of motorcycles are costlier due to import content and royalty payments to their

Japanese collaborators.

Table: 3.03 Market Share of the Motorcycle Segment during 2006-07

( SI. No 1 Company Name I Market share (2006-07) in percent I I I

1 I Hero Honda Motors

2

3

4

37.3

5

6

Bajaj Auto

TVS Suzuki

Escorts Yamaha Motors

I I

L I I I Source: SIAM

19.7

18.4

9.2

Others

Honda motors

7 I Royal Enfield I I

7.4

6.2

1.8

1 Total 100.0

I Bajaj AL I~O I. Cscorls yam ah^ M o t o r s

e t icro tiorida M o t o r s m Royal Enf~cld

m N S S u z u k ~ ho~icta to to tors

4COt11crs

The motorcycle segment will be broadened on the high price h n t by introducing high

powered bikes priced above Rs 55,000. These bikes have been targeted at college going

students who have a flavor for high powered rides. To cater to thin segment Hero Honda

launched KARIZMA, CBZ Extreme and Hunk, they are 156cc four-stroke motorcycles

priced at around Rs 70-80,000. "Apache RTR" 160cc motorcyc1e h m TVS S d has

been the latest addition in this list. Bajaj Auto released its Pulsar variants of 150, 180

and 220cc vehicles. Yamaha Motm released FAZER and Yamaha FZ in 150cc

category. In the near future, competition will hot up in the Japanese motorcycle segment

with players like LML and Kinetic M o t m standing ready with their offerings.

Industry Stmcture:

Amato 'M' (1 995)' classified and said that the two wheeler industry in India has been in

existence since 1955. It consists of three segments namely scooters, mopeds, and motor

cycles.

3.06. Two Wheeler Industries during 1955-1969

The automobile industry being classified as one of the important sectors, it was

therefore controlled and regulated by the government industrial policy regulation Act

(IPR-1956). In order to boost up and encourage manufacturing, automobile assembly

f m s were phased out in 1952, (Traffic Commission, 1968), at the same time

restrictions were imposed on the import of complete assembled vehicles. The

manufacturing firms were allowed to continue in production of two wheel vehicles.

Production of automobiles was required to obtain license in order to establish

production plant in India. The firms manufacturing capacity was determined by the

government, indigenous production facilities were encouraged, at the same time

collaborations with foreign firms were also encouraged. Two wheeler industries are

controlled by five major players viz: Automobile Products of India (API), Ideal Jawa

pvt Ltd., Escorts India Ltd, Bajaj Auto Ltd. (BAL), and Enfield India Ltd. Most of the

firms existing in this period had some form of collaboration with foreign firms. The

following table 3.04 highlights the important firms that existed in the industry during

this period.

Table: 3.04 Two wheeler industry during the Period: 1955-1969.

Brand name

Royal Enfield 350CC

Lambretta

Vespa

YEZDI, 250CC Rajdoot

Source: SlAM

S1.No 1

4

5

Name of the foreign collaborator Enfield Ltd.,U. K

Innocent Ltd., Italy

Piaggio, Italy

Jawa Ltd., Czechoslovakia

CEKDP,Poland

Name of the Indian Firm Enfield India Ltd(E1L) Automobile Products of India(AP1) Bajaj Ltd.(BAL) Ideal Jawa pvt Ltd.

Escorts Ltd.(EL)

Segment

Motor cycle

Scooter

Scooter

Motor cycle

Motor cycle

3.07. Two Wheeler Industries during 1970-1980

This period witnessed a growth rate of about 15% per annwh, furthermore, the levels of

restriction and control over the industry were very high, license raj system was

prevailing during this period, restrictions on capacity expansion, and MRTP regulations

were refrained the growth momentum. At the same time rupee devaluation and steep oil

price hike in 1974 resulted in heavy demand for motor bikes. Following which motor

bikes becarpe popular means of personal transport, because they offered higher fuel

efficiency over cars and helped in overcoming the hassles of scattered and inefficient

public transport systems. The introduction of regulatory policies such as MRTP and

FERA resulted in a controlled industry. The impact of MRTP Act (Monopolistic

Restrictive Trade Practices) was limited because it affected only large firms like Bajaj

Auto Ltd., whose growth rate was narrowed as it came under the purview of MRTP act,

as it restricted foreign investment into the country. Fortunately FERA did not stopped

entry of technology transfer, as a consequence of which new firms and new products

entered the market, since this segment developed almost entirely on foreign

collaboration technology.

Table: 3.05 The details of firms which entered the market during 1970-80

SI.No

1

2

3

4

5

Source: SIAM

Name of the Indian firm Kinetic Engineering Ltd(KEL) Scooters India Ltd (SIL), Maharashtra Maharashtra Scooters Ltd (MSL) Majestic Auto Ltd

(W) Sundaram Clayton Ltd (SCL)

Name of the foreign collaboration

---

---

---

---

---

Segment

Moped

Scooter

Scooter

Moped

Moped

Brand name

Luna

Vijay

Pri ya

Hero Majestic

WS-50

3.08. Two Wheeler Industries during 1981-90

Lack of technical know-how, Quality standards was the major reasons for backwardness

of the Indian two wheeler industry. This prompted the initiation of reforms in 1981,

foreign collaborations were allowed for all two wheelers up to an engine capacity of

100cc. This encouraged new players to enter into the market. This made the entry of

many firms especially in motor bike segment, bringing with them new technology that

lead to production of efficient engines of two stroke and four stroke. Broad banding was

allowed in 1985, as a result variety of products have entered the markets. Indian markets

in the seventies had two major draw backs namely: Low fuel efficiency and high weight

were the bottle necks for exports, but in foreign market, there was a trend towards using

high-strength, low-weight materials for construction of engine body and other parts used

in the motor bike, which resulted in vehicles that were compact and had lower weight

since fuel consumption is directly proportional to its weight. Light weight vehicles gave

more mileage. These draw backs were overcome in eighties when the foreign

collaborations were allowed. This coupled with the announcement of broad banding for

the tWo wheeler industry, gave firms the flexibility to choose an optional product and

capacity mix would better incorporate market demand into their production strategy and

there by improve their capacity utilization and efficiency.

These reforms had two major effects on the industry; first licensed capacities went up to

1.1 million units per year overshooting to 0.675 million units per annum target set in the

6'h plan. Second, several existing but weaker players went on to giving way to new

entrants and superior products.

I 1 I ~ ~ s - s u z u k i I Suzuki-Japan I lOOcc I Ind-Suzuki I

Table: 3.06 The table showing the details of the firms during 1981-1990:

S1.No

3 1 Escorts Ltd I Yamaha-Japan I lOOcc I YamahaRXlOO

4 1 Hero Motors Ltd I Honda-Jaoan / lOOcc I Honda J a ~ a n

2

I Honda-Japan 1 scooter 1 NHlOOcc I

Name of the Indian firm

Bajaj Auto Ltd

1 8 1 EnfieJd India Ltd I Zundap-Werke I MC 80cc 1 Explorer I

Name of the foreign collaboration

7

Kawasaki-Japan

3.09. Two Wheeler Industries during 1991-2007

Segment

Lohia machinery Ltd (LML) Enfield India Ltd

9

The Indian automobile especially two wheeler industry saw a deep cyclical trend. The

phenomenal growth registered up to 1990's was followed by a severe recession up to

1993 and a strong recovery during 1993-1996, the industry then witnessed a slowdown

Brand name of the product

lOOcc

and continued up to 1999. The reforms that began in the late seventies underwent their

most significant change in 1991, under the prime minister ship of late Sri P.V.

Narasimha Rao and union finance minister Dr. Man Mohan Singh through the

liberalization and globalization of the Indian economy,

In the area of trade and commerce, several reforms were introduced with the goal of

making Indian economy a sound economy and the Indian economy on par with the

developed economies and making Indian exports competitive. This period was

witnessed an introduction of variety number of brands in the market which caused firms

to compete each other on the basis of fuel efficiency. In 1970's, the motor cycle mileage

was on an average between 30 to 45 Kmpl which has now improved to 50 to 80 Kmpl.

Kawasaki Bajaj(KB)

Piagio - Italy

Zundao-Werke

Source: SIAM

Enfield India Ltd

Scooter

Mooed

Zundap-Werke

Vesga(XE)

Zundao

MC lOOcc Silver Plus

The engine capacity was also increased from 3-6 BHP to 10 BHP pel lOOcc in the

motor cycle segment. In the motor cycle segment, the new lOOcc model with Japan

collaboration compared well against the existing heavier models of 250cc, 350cc. The

100cc motor cycles were lighter and fie1 efficient [ACMA].

3.10. Industry trend

During 1992-93 to 2006-07, the two wheeler industry has seen structural changes. This

can be seen from the change in the composition of two wheeler sales where the

motorcycles have constantly gained market share from the scooter and moped segments

to comer a share of 82% of the total two wheeler sales. This trend is expected to

continue till the four-stroke scooter make their presence felt in the segment. The table

below gives an idea about the overall structure of the two wheeler automobile sales in

India.

Table: 3.07 Two Wheel Automobile Sales in India during 1992-93 to 2006-07

Source: SIAM * (bracketed figures indicate negative growth)

Clurl: 3.03 Two Waaler ulss in India doltag 199293 to 280607

I two wheeler automobiles In lndla

your I

(Source: SLAM)

Moped sales

Mopeds are entry level vehicles. The demand for mopeds is predominantly firoar low to

middle income families who graduate fiom bicycles to motorized vohiclcg and a h

among college d e n t s . Moped sales i n b h m 4, 08,022 units in 1992-93 to 6,

83,756 units in 1997-98 at a LGR of 11.4% (CAOR of 11.97 %,). AAer 1997-98 the

growth rate slowd down with a LGR of 5.63 % (CAOR of 5.78%) up to 2000-01,

t h e the sales of mopeds dwindled. In 200041 the number of unite sold was 4,27,

498, then the growth rate was dccmsed to a LGR of - 4.65 (CGR of - 4.53%). In 2006-

07 the number of units sold was 2, 93,436 the inmasing prtfmnoc towads ecooters

and motorcycles in the nineties lead to slow growth for mopeds compnred to other

segments.

Chart 3.04a Mopeds sales from the period 1992-93 to 1998-98

Moped Year sales y = 59498x t 31085

~1-narn

LGR CGR

Source: SI

1992.93 1993-94 1994-95 1995-96 1996.97 1997098

S e r i e s 1 -Linear (Serii&S - Poly, (Seriesl) I - _ " - - . - *- .

Chart 3.04b Mopeds sales from the period 1998-99 to 2000-01

Moped 1 1 sales 1

LGR CGR

1998.99 1999.00 200641 YEARS

-Series1 -Linear (Seriesl) -- ." - - - -

7soooo - Sales of mopeds

I I I J

Source: SIAM

VI 5 700000 - H

!i 8 650000 -

600000

y = 38617x+60837

/ '3 0.993

s I

Chart 3 .04~ Mo ed

sales 200 1-02 427498

sales from the period 2001- 02 to 2006-07

Sales of mopeds

200142 200243 200344 200495 200546 200647 YEARS

C A I CC I hnw1thl Ct\

Source: SIAM

Chart 3.04d Total sales of mopeds from 1992-93 to 2006-07

Source: SIAM

800000 -

y 600000 -I

2 0 400000 - W

t E 200000 -

s a l e s o - - I I , I I 1 I I I I I I I l i

9 r s b 1 % 9 5 % 9 # # . # 9 9 " R , R , $ g R D P , P q ( (, $ 99$94'999$9@,$49,$ 9 9 9 9 9 9 9 9 $ $ 5 5 5 $ % % % % % % % % %

YEARS

Scooter sales from 1992-93 to 1997-98

The scooter segment can be M e r classified into the geared and the ungeared scooter

segment. Geared scooters are generally metal bodied while the ungeared ones come in

plastic bodies. The demand for geared scooters is primarily from the middle aged group

who has a family to look after. They would look out for the utility value of the vehicle.

The demand for geared scooters is price sensilive compared to motorcycles. The

demand for gearless scooters (or scooterettes) is mainly from women, teenagers and the

student community. They are basically easy to handle and ride. Demand in this segment

is also price sensitive. The scooterettes were first introduced by BAL (Sunny) followed

by TVS Suzuki (Scooty). In FY99, LML entered the segment with a scooterette in 60cc

and 75cc engine capacity.

Scooter sales have increased from 7, 69,955 to 13, 01,051 units from 1992-93 to 1997-

98 with a LGR of 1.28 % (CAGR of 13.6%). But sales growth has dropped from a high

of 18.37% yoy in FY96 to 7.1% yoy in FY97. FY99-00 saw better times with sales

growth rising to 5.05% yoy, then started decreasing the sales growth rate until 2002-03,

with a LGR of -l.O8(CGR of -10.79%), then 2003-04 onwards started increasing the

growth rate with LGR of 1.58(CGR of 1.62), peaked the sales during 2005-06 and then

once again fell to a low of 9,76,358 units. The future growth in the scooter segment will

be more from the scooterettes or gearless scooters segment, as compared to basic

models. The four-stroke models of geared scooters, which were expected to create some

demand, have not yet been able to do so. This may be due to their associated drawbacks

like increased risk of skidding, vibration problems and restricted efficiency gains. Also

higher maintenance costs due to the large number of moving parts add up to the

disadvantages of buying a four stroke scooter.

Chart 3.OSa Scooter sales from 1H2-93 to 1997-98

y = 16555x2 t 9540,~ t 69516

YEARS 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98

-Series1 -Linear (Seriesl) - Poly. (Seriesl)

Chart 3.05b Scooter sales from 1998-99 to 2002-03

Year

1998-99

1999-00

2000-01

2001-02

2002-03

CGR

LGR

Scooter sales

1262699

1325868

1253969

937506

848434 1998.99 199940 200041 200142 200243

-10.79 -Series1 -linear (Seriesl) - Pol y , (Series!) -1.08 -- - -- -- -

1500000 - y:-12168~+ 1E96

Y ~lWOooO - VI a e 8 so0000 u VI

0 -.

R' 1 0,789

e y :: .39218x2t 11361x t lE46 R1 = 0,904

r 1 I 1 I

Chart 3 .05~ Scooter sales from 2003-04 to 2006-07

Chart 3.05d Total Scooter sales from 1992-93 to 2006-07

Year

2003-04

2004-05

2005-06

2006-07

CGR

LGR

W b c l b 1 8 9 9 9 ' 9 9 9 9 9 2 " 3 ' M Y b ' 1 ' 8 ' 9 9 9 9 9 9 9 + B d r S B d D 4

9 9 9 9 9 9 9 8 8 e b h P 8 8 ) 5 $ $ % 5 $ + % % $ $ % $ $ $ YEARS

Scooter sales

935279

987498

1020013

976358

1.62

1.58

1040000

to* 0000-

~ O O M W ) ~ . V) W

980000 -

960000 -

8 940000 - u V, 920000 -

goOOOo - 880000 -

1400000 -

lZOOOOO - VI ,w 10ooo00 - 4

800000 - 600000 0

8 400000 - VI

20OOO0 -

(Source: SIAM)

- J

y = -23968x2t 13541xt 82100 Ra = 0.956

I

Scooter sales

.-

YEARS 200344 200445 2005.06 200647

-Series1 -Linear (Seriesl) - Poly. (Seriesl)

Total two wheeler sales from 1992-93 to 2006-07

The two wheeler industry in particular has shown a tremendous growth over the recent

years. According to the Society of Indian automobile Manufactures (SIAM) the industry

has grown by 18.84% in the year 2002-03.This growth has been due to the

Government's initiative on rural roads and better connectivity with major towns and

cities, improved agricultural performance, upward trend of purchasing power in the

hands of rural people. The two wheeler industry was able to achieve the record

performance of crossing 8.36 million two wheelers with exact sales standing at 83,

69,347 units during the year 2006-07. The sales grew at LGR of 1.28 %( CGR of

14.05%) from 1992-93 to 1998-99, and at LGR of 1.30% from 1999-00 to 2006-07.

Motorcycles has been the most preferred choice among all two-wheeler users, they

account for nearly 80% of the total two wheeler sales in the country. This trend is set to

continue as more and more models of this hot set of two wheelers enter the market.

Chart 3.06a Total two wheeler sales from 1992-93 to 1998-99

Year

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

LGR CGR

Total

1606095

1503352

1770226

2209236

266003 1

2963489

3042855

1.28 14.05

350'W -

3000000 - 2 5 0 ~ 0 -

~ooOOW -

Wsooooo -

1000000 - so0000 -

TOTAL SALES OF TWO WHEELERS

yufi I I 1 z I I i

$ $ @ $ # 9 3 9 9 4 ' $ 9 # 4 $ 8 -TOTALSALES -Linear (TOTAL SALES)

-.

Chart 3.06b Total two wheeler sales tkom 1999-00 to 200607

Chart 3.06~ Total two wheeler sales from 1992-93 to 2006-07

10000000

I Total two wheeler sales 8000000

Y 3 6000000 - 5 4000000 - I?

2000000

0 1 1 l l 1 1 1 l l l 1 1 l I I

YEARS

Overall trend in two-wheeler sales for the last decade

As seen above the Indian two-wheeler industry has witnessed deep cyclical trends. A

robust growth witnessed up to 1989, was followed by a severe recession up to 92-93 and

a strong recession during 1993-96. The industry had then slowdown from 1996-97

which continued up to 1998-99. After 2000 prospects have turned better once again with

the overall revival in demand. The overall trend in two-wheeler sales for the last decade

is given below.

Table: 3.08 Overall trends in two-wheeler sales for the last decade

I Year I Sales of two wheelers I Percent growth

1 I I

(Source: SIAM)

102

Cbrrt 3.07 Grkr of two w J d m dm* the lad d e u b

Two-Whaler sales have increased from 2.%mn in FY 1W7-98 to 8.36 mn in FY2006-

07 at CAOR of 14.05. Then afta the i n d u q s u f f d a drop in demand in 1998-99.

Later the two wheeler industry has perfonaed extremely well especially aftcR the Puto

mobile recession in 1992-93.

During FY 2002-03 the two wheeler industry d e s were at peak level standing at 50,

76,221 units witb a CAGR of 14.25%. This growth was poseible due to tbs rbwc

average performance of the motor cycle segment which has grown at a CACiR of 18.87

%. Since then the two wheeler sales have been inmasing.

3.11. ' h o Wscl Automobile SakA in Andhra PlrdeaL

Tabk 3.09 Two Wbal Automobik Snb in Andbra P m d d during 1997-98 to 200647

Chart 3.08 Bar diagram indicating the growth of two wheelera in Andhrn Pradesh

Period

I I I

Sales of two wheelen In AP

Total

Annual sales in units

46,78,457 (Source: Department of information systems, APSRTC, A.P)

Percent as that of India

Percent iocreese/decrea8e

LGR 11.365 2002.03 2003.04 2004-05 200546 200647 S A L E S -Linear (SALES)

From the above tables and charts it is clear that the sales of two wheelers dwindled hm 34% to 8.94% fiom 1998-99 to 2001-02, and registered a negative growth in 2002-03

year indicating a severe recession. From 1997-98 to 2001-02 the sales grW at a LGR of

20.25%. Then the sales decreased to certain extent and then maintained a consistent

growth rate of 11.36% up to 2006-07. This is because of drought conditions prevailed at

that time in the State. This happened in tune with the fall in industry demand during

2000-01. There after the sales of two wheelers picked up and rose to 7,49,428 units in

200607.

3.12. Demand for two wheelers in India

The demand for two wheelers in India is dependent up on the factors like availability of

finance, increase in income levels, restricted growth of public transpoctation facility,

and movement in petrol prices. Except movement in petrol prices, all other factors have

positive correlation with the demand for two wheelers. The increase in petrol price on

the contrary adversely affects the demand for two-wheelers due to increase in the

running cost of the vehicle.

Two wheelers are distinguished on different factors for different consumer segments,

for example high powered two-wheelers have a niche market as racing/sporting vehicles

and have a special appeal to youngsters and college goers. Easy

maneuverability/handling ease is preferred by teenagers and women. Urbanites are

attracted by fuel efficiency and low maintenance of motorcycle. The lower end of the

market looks for durability, value for money and higher resale value. .

Supply of two-wheelers in India

The manufacturers of two-wheelers distinguished their products based on power, fuel

efficiency, maintenance requirement, ease in handling, style, looks and ergonomics,

price etc. Though there are many numbers of players, the two-wheeler industry is

controlled mainly by eight players, viz: Bajaj Auto Ltd (BAL), Maharashtra Scooters

Ltd (MSL), LML, Kinetic Motors Ltd, Hero Honda Motor Ltd, Escorts Yamaha Motors

Ltd, TVS Suzuki Ltd (TSL) and Kinetic Engineering Ltd (KEL). Among these Bajaj

Auto, TVS Suzuki and Honda Motors are having presence in all three segments of the

two-wheelers. The rest cater to one or two segments of the two-wheeler market.

3.13. Usage of two-wheelers

A two-wheeler is used as a personallfamily vehicle or a goods carrier in the developing

countries, where as it is confined to sportslracing (motor cycles) or short distance i.e.

shopping (mopeds) in developed countries.

Penetration of two-wheelers

The NCAER (National Council for Applied Economics and Research) in its latest report

(dated 22-03-2008) released in Bangalore on market demographics, has clearly

indicated that on a base of around 28mn vehicles on Indian roads and around 175mn

households. There were only 160 motorized two-wheelers per thousand households in

FY 98. This compares poorly with countries like Thailand where it is around 600 per

thousand households. Also with a household size of 5.5 persons and more than one

wage earner in about 60% of the households, the potential for a second vehicle demand

is also good in India.

In terms of the two-wheeler vehicle population, Maharashtra stands first with a

population of 2.96rnn vehicles and Gujarat stands second with 2.64mn vehicles as on

march 31S', 1997. Tamil Nadu is the third largest with 2.45mn two-wheeler population.

In motor cycle sales, western region leads with a market share of 40% of the motor

cycle sales. South and North regions stand second and third with a market share of

27.5% and 17.4% of total motor cycle sales respectively.

Key Positive Drivers

1) Improvement in disposable income: With the increase in salary levels, due to the

entry of multinational companies following Liberalization process and higher

economic growth due to "Man Mohan Singh Effect" the disposable income has

improved enormously over the years. This will create demand for two-wheelers.

2) Availability of credit for vehicle purchase: The availability and cost of finance

affects the demand for two wheelers. The trend is for increased credit purchases

over the years with falling bank rates as a result of change in RBI monetary policy.

It created huge demand for two-wheelers.

3) Large population and rising rural prosperity: The rural Indian population is large

and its growth rate is also high. 70% of India's population lives in around 6,27,000

villages in rural areas (2001 censes) and NCAER study pointed that, "there are as

many, middle incomes and above households in the rural areas as there are in urban

areas". According to the NCAER study projections by 2006-07, the lowest income

level class will shrink by more than 60%, and the higher income classes are likely to

double.

4) Effective communication & IT penetration in rural India: Today there are over

15mn villages in India who are aware of internet and over 3, 00,000 villages are

using it.

Key negative drivers

1) Government policy impact on petrol prices:

Petrol prices determine the running cost of two-wheelers expressed .in rupees per

kilometer. Petrol prices in India are the highest as the government of India subsidizes

kerosene and diesel but not petrol. Government of India's policy to subsidize the petrol

prices vary with the changes in the government policy. World crude prices are also

highly volatile.

2) Changes in the prices of second hand cars:

The second hand car prices of small can have come down sharply in the recent past.

This will shift the demand from higher end two-wheelers to cars and affect the demand

for two-wheelers negatively.

3) Launch of people's car (Tata's Nano):

The impending launch of the so proclaimed people's car by the Tata group in the small

car segment priced at 1 lack by Ratan Tata will have greater impact on high end or

premium segment motor bikes, as predicted by the industry experts.

4) Implementation of mass transport system (metro railsl:

Many states have planned (including Hyderabad) to implement mass transport systems

in state capitals in the future. This will have a negative impact on demand for two-

wheelers in the long run. But taking in to account the delays involved in implementation

of such large infrastructure projects, we expect the demand to be affected only 5 to 7

years down the line.

3.14. Emission norms

The emission norms are becoming stringent the world over. Two-wheelers emit harmli.11

pollutants such as carbon monoxide and hydro carbons. In India, the norms are being

implemented in two phases, while the first phase Euro-I norms have become applicable

since April 1996, even more stringent norms Euro-I1 has come in to effect from April

lst, 2000. The details about emission norms are as given in table 3.10.

The temporary option for overcoming emission norms is to fit the catalytic converters.

This will increase the cost of vehicles. But as a long run solution scooter manufacturers

have to opt for four stroke engines or improvement in two stroke engines. The catalytic

converters cost in the range of 1,500 - 2,500 but have a limited life of 10,000 kilo

meters for a vehicle running. Therefore catalytic converter requires regular maintenance

on part of the user. Also catalytic will be effective only for unleaded petrol usage, which

is not widely available in the country, Scooter manufacturers have started responding to

the Y2K norms by introducing four stroke vehicles in the, late 1998. They plan to fit

catalytic converters to two-stroke scooters to overcome emission norms. The Japanese

motor cycle segment will be able to overcome emission norms with the technology help

of respective Japanese collaborator. The Indian motor cycles have to either shift to four

stroke technology or make use of catalytic converter.

The following table 3.10 shows the trend in emission norms. The manufacturers have

options to fill fill emission norms to switch to 4-stroke engines, or 'fit a catalytic

converter for existing 2-stroke engine. As a result the carbon monoxide and hydro

carbons are reduced to a maximum of 2.0 and 1.5 grams per kilo meter respectively in

case of two wheelers and 4.0 and 1.5 grams per kilo meter respectively in case of three

wheelers.

Table: 3.10 TRENDS IN EMISSION NORMS

Trend in emission norms(gms/km) I

Three wheelers 30 12 6.75 504 4.0 1.5

Source: CMVR CO - Carbon Monoxide and HC - Hydro Carbons

3.15. CONCLUSION

The competition is hotting up with the entry of many MNC players. Customers are

getting a wider choice in different price slots. Quality standards are becoming world

class. India is using every chance to become world number one, The industry already

meets Bharat-I1 emission nonns which were equivalent to Euro-111 norms. It is geared

up to meet Bharat-111 norms (equivalent to Euro-IV). This throws opportunities for

higher expbrts.

The two-wheeler industry in India sold 7.5 million vehicles in 2005-06 and 8.3mn in

206-07, recording a robust growth of 15.9% and 10.5% respectively. The aggregate

two-wheeler population too has gone up to over 60 millions. But this reflects a low

penetration level; according to NCAER still there is big potential to be tapped because

India has 500 million middle class populations waiting to buy two-wheelers.

The market is vibrant, modern and upbeat. New technology, materials, styles, features

and colors are coming in; the focus is on ride quality, maneuverability and comfort. The

two-wheeler is also a status symbol and a fashion. Electronics is coming in big way in

engine management systems for improved he1 efficiency, reducing emission levels and

improving performance parameters. New safety features are being added to enhance the

safety of the customer.

Outlook

The motor cycle segment of the two-wheeler industry will continue to register more

number of vehicles. The motor cycle segment in itself is likely to get fragmented with

manufacturers striving to create a balance between looks, fuel economy and power. The

trend clearly indicates &at there is good potential for 125cc vehicles in the coming days.

Teenagers and College going students preferred 125 and above 125 cc motorcycles.

Scooters back in favor

There are distinct signs from 2003-04 onwards staging a comeback. There is a

noticeable preference for scooters with advanced technology, higher engine capacity

and light weight. Automatic (non-geared) scooters are in demand. They offer more

convenience apart from giving a comfortable ride with enhanced he1 efficiency by

using 4-stroke technology.

Electric vehicles

Electric two-wheelers have also made an entry in the Indian market but the numbers are

small. These were introduced in 2006-07 and the sales totaled at 7341 units (source: The

industry survey, The Hindu, 2007-08, dated 27 -07- 2008), cumulatively the total

number on road as on 27-08-08, were 22,000. The sales of electric vehicles slowed

down because the battery specifications become a limitation on power, range and speed,

but the running costs are attractive in the absence of statutory duties (registration is not

required). These are ideally suited for short distant rides and for elderly people.

The two wheeler industry now needs to focus on building up customer relationship in

view of increasing competition, wider choice, higher disposable incomes and easy

consumer finance.

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