Flooding the Indian Motorcycle Market



Themes: Business Environment
Period : 1990s-2002
Organization : Hero Honda, TVS
Pub Date : 2002
Countries : India
Industry : Automobile & Automotive

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Case Code : BSTR026
Case Length : 10 Pages
Price: Rs. 300;

Flooding the Indian Motorcycle Market | Case Study

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The Motorcycle Story

In the early 1980s, the motorcycle segment reported a sharp decline in growth on account of factors such as high running and maintenance costs, perception that motorcycles were more suitable for the rural roads, high price of motorcycles in comparison with scooters or mopeds and the availability of fairly new models of scooters. With the de-licensing of the automobile sector in the mid-1980s, the motorcycle sales registered a healthy growth during the late 1980s.

In 1990, due to the 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, the industry witnessed a recession. Added to that, factors like increased production in 1992 due to the entry of new players resulted in companies either reporting losses or a fall in profits.

In 1993, the recession began to ease off and the growth in the motorcycles segment began. The two-wheeler industry saw large-scale structural changes. With the launch of lighter, 100-cc motorcycles, a significant inter-segment shift began to take place and motorcycles sales began to grow.

The popularity of Hero Honda motorcycles during this period accelerated the demand for motorcycles. Soon, the motorcycle segment garnered the largest share of the total two-wheeler sales. The two-wheeler industry grew at a CAGR of 14.6% between 1993 and 99, aided largely by the above average performance of the motorcycle segment, which grew at a CAGR of 24.3% compared to 11% and 8.6% for scooters and mopeds respectively.

Until 1997, all three segments grew in size, however from the fiscal 1999, motorcycles started directly eating into scooter sales (Refer Table IV & V). The demand shift from scooters to motorcycles in the 1990s was without parallel in any comparable product category in India1. This was mainly attributed to the change in customers' preference towards fuel-efficient and aesthetically appealing models, which scooter manufacturers failed to provide.

The delayed launch of new, advanced scooter models, fear of four stroke scooters being prone to increased skidding risks and vibrations and the difficulty of maintenance also contributed to this shift. Interestingly, the growth in the motorcycle segment was mainly driven by the demand from rural and semi-urban consumers. An estimated 60% of the demand for motorcycles came from rural and semi-urban customers.

The rise in their disposable incomes on account of good monsoons in the 1990s provided the normally conservative rural and semi-urban customers with extra money that induced them to experiment with new, innovative products (Refer Exhibit I). Advanced technology, larger wheelbase, higher ground clearance and the ability to ride on bad roads with less effort and less danger of skidding and decreased maintenance cost were the other factors that encouraged customers to choose motorbikes over other two-wheelers.

Besides the brand launches, the other major development in the motorcycle segment during 1998-2001 was the break-up of the various joint ventures. By the end of 2001, Escorts and TVS ended their agreements with Yamaha and Suzuki respectively. The joint venture agreement (Hero Honda) between Hero Motors and Honda Motors was also scheduled to end in 2004. The reasons for these break-ups were varied and included differences over issues such as launch of new models, ad spend, marketing strategies, the foreign counterparts' inability to offer fuel-efficient and innovative technology etc.

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1] Business Line, January 2001.