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Demand dip has caught up with the two-wheeler industry too. Hero MotoCorp, Bajaj Auto and TVS are expected to go in for major production cuts soon. This is because demand is slowing and inventories with dealers are piling up over the last few months, industry sources said.
This marks a reversal for the two-wheeler segment that has along been the poster boy for the automotive industry with large sales and strong profit margins.
Though the segment has been able to weather the slowdown till now, it may soon join the passenger car and commercial vehicle makers facing the brunt of rising fuel prices and interest rates.
Analysts say that the biggest threat to two-wheeler sales is the delayed and deficient monsoon. But companies are hopeful that the upcoming festival and wedding seasons (starting September) will help clear inventories.
High inventories
“Inventories are at a high at the dealer end — up to 40 days in some cases, which is unprecedented,” an industry source said.
Sources close to the development said that vendors to Bajaj Auto’s Pantnagar plant have been asked to reduce supplies. The facility makes several variants of the Discover and Platina bikes.
A major supplier added that Hero MotoCorp is also likely to produce less by about 20 per cent both because of the high stocks and the fewer number of working days in August.
Billing more
K. Srinivas, President of Bajaj’s Motorcycle Business, said that the lack of growth by the industry marks the fact that many players are billing more units than what is actually being retailed. However, he denied the production cut.
“The motorcycle industry has been showing signs of a slowdown right from November 2011. Bajaj Auto read the signs early and we have been billing only what finally gets retailed. “We have very good reasons to believe that not all other manufacturers have followed this philosophy. If all others had also billed as per retail, the industry would show negative growth which is its true reflection,” he said.
Multiple sources in the supplier industry said that players such as TVS and Bajaj could be hurt the most.
While Honda has been able to buck the slowdown with growth above 55 per cent (Q1 and July 2012), market leader Hero may be forced to cut production as inventory at its dealer-end builds up.
Sentiment low
“The sentiment is extremely low, but we think it may be a temporary phase,” a top executive at a supplier said.
A Hero spokesperson acknowledged the stock build-up, but added that no production cuts have yet happened.
“The overall macro-economic situation and patchy monsoon have impacted the industry in general, and retail sales in both the urban and the rural markets have been adversely affected. This has led to a build-up of inventories at dealerships,” he said.
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