Consumers' drive for cars costs bikes dear

A quiet change in the preferences of urban consumers for passenger cars together with hardening of interest rates has been a key reason for the slowing down of two-wheeler sales, which has become more pronounced this year.

In the last two months, two-wheeler sales dropped to single digit (7 percent) compared with an average annual two-wheeler sales growth of over 14 percent (between April-December 2006). And market analysts predict that two-wheeler sales at least for the next three to four months might not see double-digit growth at all.

Vishaka Jajoo, auto analyst with Angel Broking, says: "Customers in urban markets (where 55 percent of two-wheeler sales happen) are shifting towards second-hand cars and the sale of two-wheelers is limited to high performance bikes. So volumes of 100cc and 125cc bikes are coming down".

Adds Arvind Jain of Religare Securities: "There is a shift towards new and used-cars which has slowed down the two-wheeler market and we don't expect the growth to be in double-digits in the next few months."

Two-wheeler companies such as TVS Motors admits that sales in urban markets is slowing down faster than in rural markets. But he says the key reason seems to be hardened interest rates.

R Chandramouli, senior vice president - sales, TVS Motors, says: "The growth rate came down in the past few months, primarily due to a hardening of interest rates, as 60 percent of our sales are financed. There could be other reasons and we are analysing it. The sales dip has build up the product inventories of 20 days, but it is part of the plan and we would push them into the next financial year."

But the growing shift of urban consumers to second-hand cars is reflected in the fact that the used-car market, according to industry experts, doubled in the last three months over the previous year. And an increasingly larger number of used-car buyers are consumers whose first transport vehicle is a car and not a two-wheeler.

Says a senior executive of Maruti's True Value (the used-car sales company): "At least 80 percent of the customers are first time buyers who have not brought any transport vehicle earlier. It clearly shows that cars provide the aspirational need and status of the customers and are also much more safer."

Research carried out by True Value predicts that used car market would be similar to the new car market of around 2.2 million by the year 2010 and majority of the customers could be two wheeler aspirants.

So what are two wheeler companies doing - they are concentrating on high-end premium bikes to maintain their sales graph. Hero Honda would be launching an all new 200 cc bike while Bajaj Auto will come out with 220 cc Fuel Injection Pulsar while TVS will being a new over 150 cc bike in next few months.

Companies say that premium bikes match aspirational levels, offer higher margins and customers looking for premium bikes do not go in for second hand cars.