FIRST SALES FALL IN OVER 3 YEARS

Two-Wheelers have a Flat on Recession Road

High interest rates & pricey petrol blamed; Hero MotoCorp and Bajaj among worst-hit

Sales of two-wheelers fell for the first time in 42 months in August as a combination of surging petrol prices and high interest costs forced customers to cut back on purchases. Twowheeler companies such as Hero MotoCorp and Bajaj Auto posted a sharp drop in sales while overall industry numbers declined 5% for the first time since January 2009 to 1.07 million units. 
Only Honda Motorcycle & Scooter (HMSI) and Suzuki bucked the trend with a robust rise in numbers. The decline, coming weeks ahead of the festive season, is a rude jolt for the industry, indicating flagging demand just when the economy needed a booster shot with higher consumption. 
"The future depends on the coming months and we expect retail sales to rise during the upcoming festive season. The past two months have been really tough. We have seen a drop in retail sales and our stocks are rising. We are betting on the festive season to revive the market," said Hero MotoCorp MD & CEO Pawan Munjal. 
Industry executives blame the fall on petrol prices that have risen sharply in recent months, and high interest rates, which are at 24% compared with 10-12% for cars. Unlike cars, twowheelers don't have the cheaper fuel option of diesel. Buyers are also delaying purchases due to an uncertain economic environment and the spectre of drought in many rural areas. "The market may not imitate previous years, when the festive season led to high demand," said Sageraj Bariya, managing partner at Mumbai-based research firm Equitorials.'We may be Heading Towards a Black Diwali' 
"The scene is different this year with weak consumer sentiment trickling down to all markets, including the rural areas that are lying low due to delayed monsoon. We may be heading towards a Black Diwali and auto companies may face even tougher times ahead," said Sageraj Bariya of Equitorials. 
Rural areas are the primary market for two-wheelers and the deficient monsoon in many parts of the country may have contributed to the slump in sales. Mahantesh Sabarad, senior vice-president of equity research at Fortune Financial Services, estimates two-wheeler sales growth at 6% for the full year, down from his earlier estimates of 10%, as people put off discretionary spends. But, strangely, finance companies don't seem to have been affected. "We don't see any impact in tier-II and tier-III cities. There is some slowdown in metros," said Sundar Rajan, director, Shriram City Union Finance. Most bikes and scooters are sold on finance, especially in rural areas. Financing costs remain high for this category and even a slight dip in consumer sentiment and souring of economic climate could force people to pull the plug on purchases. 
"There have been some challenging times, and this has taken the sheen off the two-wheeler market. And with customers delaying purchases, even the demand for scooters is sluggish," said Atul Gupta, vice-president (marketing & sales), Suzuki Motorcycle India. 
(With inputs from Shilpy Sinha in Mumbai)