Problems in 2 Wheeler Industry

for slides: Problems in the Two Wheeler Industry – Negative Growth Negative growth is the major problem being faced by companies in the two wheeler industry. The two wheeler industry has been shrinking continuously3. From a peak of over 40% growth in 2002 it is currently facing a growth of -12% in the second quarter of 2008. Exhibit 2 shows the recent trends. Exhibit 2. De-growth in the industry

Analysis of the different segments leads us to the conclusion that the main reason for negative growth in the two wheeler market is the fall in demand for the 100 cc segment which has traditionally enjoyed the maximum market share as shown in Exhibit3. | FY06| 9M/07| Q4/07| Q1/08| Q2/08| Motorcycles| 19%| 18%| 4%| -10%| -12%| 100cc| 7%| 14%| -12%| -20%| -23%| 125cc| 121%| 31%| 71%| 10%| 11%| 150cc| 29%| 22%| 43%| 28%| 22%| Exhibit 3. Segment-wise analysis Many factors have contributed to this phenomenon. A few of them are discussed ahead.

Interest Rates Interest rates are one of the prime reasons for the sharp fall in demand. Many banks have increased interest rates which make two wheelers costlier. Credit Crunch Difficulty in availing loans, rising defaults, tightening of loan recovery laws and various other factors have dissuaded consumers from availing loans and led to further problems in credit lending. Oil Prices Increasing oil prices have deterred many lower middle class families from buying two wheelers. Launch of Low Priced Cars like Tata Nano

Introduction of low priced cars will directly affect the market. The family segment would want to gradually move from two wheelers to four wheelers. The major impact of this phenomenon would be experienced in the 100-125 cc two wheelers whereas the performance segment i. e. > 125cc will continue to grow strongly. Tightening Regulations (Emission Standards) With the introduction of the Bharat-4 norms, it will be more challenging to meet these stringent norms whilst simultaneously offering competitive prices.

For Report: What r the challenges faced by the 2W industry? * Increased GDP per capita –shift from 2W to 4W * Development of small, inexpensive 4W (Tata groups’s “1 lakh car” is an example of the affordability of 4W –minimum of 10-15% shift from 2W to 4W) * In most developed countries, used vehicles are transition vehicles for buyers who are not ready to migrate to new vehicles. But because Indians tend to keep their vehicles until they are no longer usable, India lacks a large stable of newer-model used vehicles.

Hence, India’s used vehicle market is very immature and is not expected to grow, adding more reason for interviewees to predict that buyers will move from two-wheelers to new, inexpensive four-wheelers. * Interviewees report that the demand for two wheelers and small cars has focused Indian and foreign manufacturers and suppliers on making India the center of expertise for these small, inexpensive vehicles. Fuel-efficient, small vehicles support India’s long-term goal of energy independence, and from a safety perspective, they move people from two wheelers, which are generally considered less safe, into four-wheelers.

Smaller vehicles also typically provide a higher level of emissions control than two-wheelers. * Production problems: * Quality and quantity of skilled labor is a problem, especially lack of engineers. * Labor regulations are strict and inflexible. Indian labor is overprotected. This has led to a practice of employing a small group of core employees and a larger number of temporary workers who can easily be let go. * Wages are low, but they are rising and in next ten years wage structure will be similar to that of the West.

Wages have risen 20% in last couple of years. * External challenges: * Infrastructure: Despite large investments in highways, connections between rural and urban cities are still lacking. Acceleration of road construction and traffic law enforcement are key areas for improvement because of the impact of traffic congestion on consumer purchasing patterns. * Air quality, oil dependency, and congestion issues: One major concern is the risk of unstable oil prices derailing growth in the auto industry.

Another is that governmental fuel-price controls will limit private investment. Manufacturing of fuel –efficient and a better engine is an issue because that will improve the air-quality. With the introduction of the Bharat-4 norms, it will be more challenging to meet these stringent norms whilst simultaneously offering competitive prices. Government’s efforts to augment public transportation and port capacity enforce traffic laws, and support alternative fuels will allow it to address multiple problems including oil dependency, air quality, and road congestion.

December 29, 2017