India, a rough ride for premium motorcycles

The premium motorcycle segment has been grappling to garner volumes and profitability in India due to a slew of factors such as low volumes owing to its niche nature, high operational cost and minimal profit margin, fierce competition among OEMs to gain share in a small segment, and the relatively high tariffs on imported premium bikes.

With the iconic American motorcycle-maker Harley-Davidson announcing its exit from the Indian market last week, the troubles brewing in this segment have been accentuated.

“The overall size of the premium motorcycle industry above 500cc and the ₹5-lakh price-point continues to be niche. In the last 12 months, the size of the industry was 6,000-7,000 units only. The size itself is small, and that’s a reason for concern,” Shoeb Farooq, Business Head, Triumph Motorcycles India, told BusinessLine . The automobile sector had already been undergoing a prolonged slowdown when Covid-19 hit discretionary purchases, he added.

“In the last 12 months, the loss in the premium motorcycle industry has been pretty large. Around 32-40 per cent of the sector has (been) shaved off,” Farooq further said.

“Premium lifestyle products in India are still very niche and don’t command huge volumes. I’m not sure if the premium bike segment ever took off in India, in terms of volume or profitability. The time for the premium bike segments is yet to arrive in India,” said Suraj Ghosh, Principal Analyst - Powertrain Forecasts, IHS Markit.

The exit of a premium brand like Harley-Davidson from the market aggravates the uncertainty and dearth of confidence among consumers and dealers towards the existing international brands in the country, said Vinkesh Gulati, President, Federation of Automobile Dealers Associations (FADA).

BusinessLine reached out to players in the segment to understand if they are undertaking a shift in their India strategy amid these challenges, as the debate on the viability of global automakers in India has been reinvigorated due to Harley-Davidson’s exit. Ducati, BMW Motorrad and Benelli did not respond to BusinessLine ’s queries.

While Triumph Motorcycles’ Farooq admitted that it would take at least a year for the premium motorcycle industry to see a turnaround, he said that Triumph already has a strong strategy in place for India, with the country set to be one of its “strongholds in the future”. “We are trying to steer the stress in the industry through some aggressive pricing strategy. We know we have to bring down the price point of our motorcycles over a longer period of time,” he said. He also claimed that the company’s early transition to the BS-VI emission norms also helped.

Having launched 13 products in the January-August period, its product strategy is also on track with more launches planned till June 2021, he added. Triumph has also entered into a non-equity joint venture agreement with Bajaj Auto to address the 200-700 cc motorcycle segment, with the first product expected by 2022. This will give the brand access to a larger market, he said.

However, the premium motorcycle industry faces an array of challenges owing to various aspects of the Indian market.

“The market in India is highly cost-competitive. With Covid cases increasing rapidly in India and urban business sentiments being muted, ...customers are averse to taking high-ticket loans. Additionally, from a structural perspective, road infrastructure aids sales of premium bikes. Lack of high-quality road infrastructure and ability to afford premium vehicles for a large segment of society has constrained growth for the premium segment,” said Hetal Gandhi, Director, CRISIL Research.

Demand may continue to remain moderate over the next two years, Gandhi added.

India is still a developing market for high-end bikes, with a small customer base, and surviving in such a challenging condition is a test in itself for every manufacturer, said Gulati. “It becomes an even more complicated task for the channel partners such as dealers to survive under such conditions. Operating a premium two-wheeler dealership is viable only when bare minimum numbers are sold, but with Covid, it is becoming very difficult to sell those numbers,” he added.

Some other challenges facing the segment include value consciousness among consumers, fierce competition among OEMs (original equipment manufacturers) to gain share in a small segment and the relatively high tariffs on imported premium bikes, said Shamsher Dewan, Vice-President, ICRA. The uncertainty regarding jobs and income growth due to the macro-economic shock caused by the pandemic is likely to keep the consumer sentiments muted, he added.

“Though the import tariffs were slashed in 2019, imports under CKD (completely knocked down) models attract higher custom duties, making the end-vehicle more expensive than indigenously manufactured models. Furthermore, the tax rates on automobiles in India are higher than in other emerging markets, thus making it difficult to break-even or achieve significant returns in the Indian market,” said Shruti Saboo, Associate Director, India Ratings and Research.

On how the segment can drive up volume and derive cost efficiencies, as well as compete with the Indian brands, Gulati said: “Any premium brand operational in India has to be focussed on its India road map, vision and strategy to operate in this market. The volumes can also be driven by launching an India-specific product which inspires the Indian customer and is in reach on the acquisition side. They should also keep in consideration that this is a price-sensitive market and their planning should depend on what segment they want to entice — volume or niche.

“Had there been a Franchise Protection Act in India, brands would not have abruptly closed their operations, leaving their channel partners and customers in a fix. With every brand closing its shop in India, India’s capital flow goes down the drain, along with loss of jobs in the sector,” he cautioned. Tariffs or GST rate revisions will play a significant role in reviving the demand in this segment, he added.

“If under Make in India and Atmanirbhar Bharat, right investment incentives are provided, that too could help in local manufacturing of the higher end of the premium (bike) segment,” said Gandhi.

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