A SHORT SURVEY ON TWO WHEELER INDUSTRY by VISHNU MOHAN

A SHORT SURVEY ON TWO WHEELER INDUSTRY





















SUBMITTED TO:Prof.JAYAMOHAN NAIR

SUBMITTED BY :VISHNU MOHAN P.M









CONTENTS


1.EVOLUTION OF TWO-WHEELER INDUSTRY IN INDIA
TWO WHEELERS IN INDIA
3.INDUSTRY STRUCTURE
4.MARKET CHARACTERISTICS
4.1Demand
4.2Supply
4.3Technology
4.4Sales
5.A GROWTH PERSPECTIVE
6.INDUSTRY TODAY
7.TWO-WHEELER INDUSTRY: FACING A CRISIS?
8.FUTURE TRENDS
9.CONCLUSION
10.REFERENCE


TWO WHEELER INDUSTRY




EVOLUTION OF TWO-WHEELER INDUSTRY IN INDIA

Two-wheeler segment is one of the most important components of the automobile sector that has undergone significant changes due to shift in policy environment. The two-wheeler industry has been in existence in the country since 1955. It consists of three segments viz. scooters, motorcycles and mopeds. According to the figures published by SIAM, the share of two-wheelers in automobile sector in terms of units sold was about 80 per cent during 2003-¬04. This high figure itself is suggestive of the importance of the sector. In the initial years, entry of firms, capacity expansion, choice of products including capacity mix and technology, all critical areas of functioning of an industry, were effectively controlled by the State machinery. The lapses in the system had invited fresh policy options that came into being in late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices (MRTP) and Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign investment respectively. This controlling mechanism over the industry resulted in: (a) several firms operating below minimum scale of efficiency; (b) under-utilisation of capacity; and (c) usage of outdated technology. Recognition of the damaging effects of licensing and fettering policies led to initiation of reforms, which ultimately took a more prominent shape with the introduction of the New Economic Policy (NEP) in 1985.


However, the major set of reforms was launched in the year 1991 in response to the major macroeconomic crisis faced by the economy. The industrial policies shifted from a regime of regulation and tight control to a more liberalised and competitive era. Two major results of policy changes during these years in two-wheeler industry were that the, weaker players died out giving way to the new entrants and superior products and a sizeable increase in number of brands entered the market that compelled the firms to compete on the basis of product attributes. Finally, the two-¬wheeler industry in the country has been able to witness a proliferation of brands with introduction of new technology as well as increase in number of players. However, with various policy measures undertaken in order to increase the competition, though the degree of concentration has been lessened over time, deregulation of the industry has not really resulted in higher level of competition.






TWO WHEELERS IN INDIA

The Two-wheeler industry is known for its inherent cyclical feature with 18 monthsof growth followed by 18 months of degrowth. The industry had outperformed thebroader market in the latter half of FY06. FY07 was a period of consolidation withthe big players capturing a larger market share among their niche segments.Thereon it continued to under perform the broader market with the exception of Q3FY09. BSE Auto Index has seen a fall of >30% in the last quarter and has hit an all time low of 2444 points which has not been seen in the past 4 years. We believe the industry is ready to pick up from a lower base, which keeps its downside capped. Sale volumes of the industry would continue to replicate a seasonal trend. Thoughthe sale volumes have witnessed a decline for more than a year, its revival would be a slow and steady process, which would be delayed on account of the unfavorable macro economic conditions and depressed consumer sentiments. On one hand the slackening growth in the GDP and IIP would put pressure on the demand factor, whereas the fall in inflation, input costs and crude prices would ease the cost constraints. We can expect the scenario of FY07 to be repeated, wherein the sales and margin would be inversely co-related. Sector incentives and government policies would determine the sector movement going forward.

We are positive on the sector, as it is a cash flow positive industry with the top 3 major players having a strong foothold. Both HHML and BAL have sufficient
amount of cash on their books and are already near completion in regards to
their capex cycle. On account of the fragmentation of the industry, competition
would prevail, but new entrants are unlikely to survive this cycle. We expect a
slow cyclical reversal to begin from FY10. We recommend a Buy on dips on Hero
Honda, Hold on Bajaj Auto and Reduce on TVS Motors.





INDUSTRY STRUCTURE

India is the 2nd largest two-wheeler market in the world with a size of over Rs 100,000 mn. The total sale of two wheelers in India has touched a figure of ~7.9 mn units by March, 2007, up 11.4% from the previous fiscal figure of ~7.1 mn units. Production during the period reached 10.8 mn units, entailing a demand ratio of ~72%. In terms of sales and market share the major players of the industry are Hero Honda , Bajaj Auto and TVS Motors. Other players include Kinetic Motors, Yamaha Motor and Honda Motorcycle and Scooter India (HMSI). The composition of the industry consists of motorcycles, scooters and mopeds. Over the past decade, there has been a consumer preferential shift from mopeds to scooters and now motorcycles. On account of the shift, the motorcycle segment dominates the twowheeler industry with a market share of close to 80%. The motorcycle segment is further sub divided into 3 classes, starting from the entry/economy class (Rs 30,000 – Rs 40,000), executive class (Rs 40,000 –Rs 50,000) and the premium class (>Rs 50,000). The motorcycle segment is primarily led by Hero Honda with a market share of ~59% followed by Bajaj Auto (~18%), HMSI (~9%), TVS Motors (~7%) and Yamaha
(~5%). On the other hand the scooter segment is led by HMSI which has a dominant share of ~63% followed by TVS Motors (16%) and Hero Honda (~14%). When it comes to the moped segment, it is primarily dominated by TVS Motors with a market share of ~100%.


MARKET CHARACTERISTICS

Demand

Segmental Classification and Characteristics

The three main product segments in the two-wheeler category are scooters, motorcycles and mopeds. However, in response to evolving demographics and various other factors, other subsegments emerged, viz. scooterettes, gearless scooters, and 4-stroke scooters. While the first two emerged as a response to demographic changes, the introduction of 4-stroke scooters has followed the imposition of stringent pollution control norms in the early 2000. Besides, these prominent sub-segments, product groups within these sub-segments have gained importance in the recent years. Examples include 125cc motorcycles, 100-125 cc gearless scooters, etc. The characteristics of each of the three broad segments are discussed in Table 1.


Table 1
Two-Wheelers: Comparative Characteristics
Scooter Motorcycle Moped
Price*(Rs. as in January 2005) > 22,000 > 30,000 > 12,000
Stroke 2-stroke, 4-stroke Mainly 4-stroke 2-stroke
Engine Capacity (cc) 90-150 100, 125, > 125 50, 60
Ignition Kick/Electronic Kick/Electronic Kick/Electronic
Engine Power (bhp) 6.5-9 7-8 and above 2-3
Weight (kg) 90-100 > 100 60-70
Fuel Efficiency (kms per litre) 50-75 50-80+ 70-80
Load Carrying High Highest Low



Segmental Market Share

The Indian two-wheeler industry has undergone a significant change over the past 10 years with the preference changing from scooters and mopeds to motorcycles. The scooters segment was the largest till FY1998, accounting for around 42% of the two-wheeler sales (motorcycles and mopeds accounted for 37% and 21 % of the market respectively, that year). However, the motorcycles segment that had witnessed high growth (since FY1994) became larger than the scooter segment in terms of market share for the first time in FY1999. Between FY1996 and 9MFY2005, the motorcycles segment more than doubled its share of the two-wheeler industry to 79% even as the market shares of scooters and mopeds stood lower at 16% and 5%, respectively.







Figure 2
Trends in Segmental Share in Industry Sales (FY1996-9MFY2005)



While scooter sales declined sharply by 28% in FY2001, motorcycle sales reported a healthy growth of 20%, indicating a clear shift in consumer preference. This shift, which continues, has been prompted by two major factors: change in the country's demographic profile, and technological advancements.

Over the past 10-15 years the demographic profile of the typical two-wheeler customer has changed. The customer is likely to be salaried and in the first job. With a younger audience, the attributes that are sought of a two-wheeler have also changed. Following the opening up of the economy and the increasing exposure levels of this new target audience, power and styling are now as important as comfort and utility.

The marketing pitch of scooters has typically emphasised reliability, price, comfort and utility across various applications. Motorcycles, on the other hand, have been traditionally positioned as vehicles of power and style, which are rugged and more durable. These features have now been complemented by the availability of new designs and technological innovations. Moreover, higher mileage offered by the executive and entry-level models has also attracted interest of two-wheeler customer. Given this market positioning of scooters and motorcycles, it is not surprising that the new set of customers has preferred motorcycles to scooters. With better ground clearance, larger wheels and better suspension offered by motorcycles, they are well positioned to capture the rising demand in rural areas where these characteristics matter most.

Scooters are perceived to be family vehicles, which offer more functional value such as broader seat, bigger storage space and easier ride. However, with the second-hand car market developing, a preference for used cars to new two-wheelers among vehicle buyers cannot be ruled out. Nevertheless, the past few years have witnessed a shift in preference towards gearless scooters (that are popular among women) within the scooters segment. Motorcycles, offer higher fuel efficiency, greater acceleration and more environment-friendliness. Given the declining difference in prices of scooters and motorcycles in the past few years, the preference has shifted towards motorcycles. Besides a change in demographic profile, technology and reduction in the price difference between motorcycles and scooters, another factor that has weighed in favour of motorcycles is the high re-sale value they offer. Thus, the customer is willing to pay an up-front premium while purchasing a motorcycle in exchange for lower maintenance and a relatively higher resale value.

Supply

Manufacturers

As the following graph indicates, the Indian two-wheeler industry is highly concentrated, with three players-Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS) - accounting for over 80% of the industry sales as in 9MFY2005. The other key players in the two-wheeler industry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto), Royal Enfield Ltd (REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI).









Figure 3
Shares of Two-Wheeler Manufacturers in Industry Sales (FY2000-9MFY2005)









Although the three players have dominated the market for a relative long period of time, their individual market shares have undergone a major change. Bajaj Auto was the undisputed market leader till FY2000, accounting for 32% of the two-wheeler industry volumes in the country that year. Bajaj Auto dominance arose from its complete hold over the scooter market. However, as the demand started shifting towards motorcycles, the company witnessed a gradual erosion of its market share. HHML, which had concentrated on the motorcycle segment, was the main beneficiary, and almost doubled its market share from 20% in FY2000 to 40% in 9MFY2005 to emerge as the market leader. TVS, on the other hand, witnessed an overall decline in market share from 22% in FY2000 to 18% in 9MFY2005. The share of TVS in industry sales fluctuated on a year on year basis till FY2003 as it changed its product mix but has declined since then.

Technology

Hitherto, technology transfer to the Indian two-wheeler industry took place mainly through: licensing and technical collaboration (as in the case of Bajaj Auto and LML); and joint ventures (HHML).

A third form - that is, the 100% owned subsidiary route - found favour in the early 2000s. A case in point is HMSI, a 100% subsidiary of Honda, Japan. Table 2 details the alliances of some major two-wheeler manufacturers in India.

Besides the below mentioned technology alliances, Suzuki Motor Corporation has also followed the strategy of joint ventures (SMC reportedly acquired equity stake in Integra Overseas Limited for manufacturing and marketing Suzuki motorcycles in India).



Table 2
Technological tie-ups of Select Players
Nature of Alliance Company Product
Bajaj Auto Technological tie-up Kawasaki Heavy Industries Ltd, Japan Motorcycles
Technological tie-up Tokya R&D Co Ltd, Japan Two-wheelers
Technological tie-up Kubota Corp, Japan Diesel Engines
HHML Joint Venture Honda Motor Co, Japan Motorcycles
KEL Technological tie-up Hyosung Motors & Machinery Inc Motorcycles
KEL Tie up for manufacturing
and distribution Italjet, Italy Scooters
LML Technological tie-up Daelim Motor Co Ltd Motorcycles
Hero Motors Technological tie-up Aprilia of Italy Scooters
Compiled by INGRES

With the two-wheeler market, especially the motorcycle market, becoming extremely competitive and the life cycle of products getting shorter, the ability to offer new models to meet fast changing customer preferences has become imperative. In this context, the ability to deliver newer products calls for sound technological backing and this has become one of the critical differentiating factor among companies in the domestic market. Thus, the players have increased their focus on research and development with some having indigenously developed new models as well as improved technologies to cater to the domestic market. Further, with exports being one of the thrust areas for some Indian two-wheeler companies, the Indian original equipment manufacturers (OEMs) have realised the need to upgrade their technical capabilities. These relate to three main areas: fuel economy, environmental compliance, and performance. In India, because of the cost-sensitive nature of the market, fuel efficiency had been an interest area for manufacturers.

It is not only that the OEMs are increasing their focus on in-house R&D, they also provide support to the vendors to upgrade the technology and also assist them striking technological alliances.

Sales

Two- wheeler sales in the country have sky rocketed in the recent years, and the annual sales of motorcycles in India expected to cross the 10 million mark by 2010. The low penetration of two-wheelers in the country 31 two-wheelers per 1000 citizens (2004) leaves immense scope for the growth of the market. Overall the industry sales of two-wheelers have grown by 15% from 6.57 million in 2004/2005 to 7.57 million in 2005/2006. The buoyant Indian economy with a growth rate of around 8% per annum is further expected to fuel the growth of two wheelers in the country.
The share of motorcycles have increased over the years, while that of other two-wheelers like geared scooters, scooterettes and mopeds have shown a negative growth or remained stagnant. The two-wheelers have penetrated 7% of rural house hold and 24% of urban markets, thus it leaves an immense scope for the market to grow.

Bajaj Auto one of the leading producers of automobiles in the country has been able to sell close to 2.3 million vehicles in 2005/2006, the sales of the company grew by almost 31%. The company registered a 32% growth in the sales of motorcycles much above the industry average of 19%. Bajaj Auto has emerged as a market leader in the entry level or price segment motorcycle with the Bajaj CT 100 accounting for nearly 40% of the market share. It also commands a 62% market share in the premium segment of motorcycles with products like the Bajaj Pulsar DTSI. TVS Motors which has lots of firsts to its credit in the two-wheeler sector in the country was able to sell 1.34 million units during the same period thus registering an overall growth of 15% from the previous year. In the motorcycle segment the company's growth in sales was in sync with the industry average.


The introductions of motorcycles like the TVS Star range of motorcycles have helped the company in gaining a healthy market share in this segment. Where the company has emerged as a clear winner by holding onto its leadership position is in the moped segment.

The company has posted a 10% growth in sales accounting for a market share of about 77%. The company also expects to arrest the decline of its one time best seller TVS Victor through its new variant Victor GLS.

If this figures have daunted you the best is yet to come, the country leader in two-wheelers hero honda have crossed the three million mark during the year 2005/2006 which is a good few lakhs more than its nearest competitor Bajaj Auto. The company accounted for nearly 40% of then two-wheeler market. In the motorcycle segment the company has been able to attain a market share of about 50%. The segment in which hero honda has emerged as a clear winner is the Deluxe segment, which is the largest segment in the motorcycles category, with its flagship family of motorcycles splendor selling over 1.2 million units which is just a shade less than all the two wheelers sold by TVS during the same year.

The motorcycle category is expected to see a further growth and according to industry experts it will drive all other category of two-wheelers to the periphery.

The table below shows the over all trend of Industry Sales over a 5 year period. The figures are provided by the Society of automobile Manufactures Association (SIAM).

















A GROWTH PERSPECTIVE

The composition of the two-wheeler industry has witnessed sea changes in the post-reform period. In 1991, the share of scooters was about 50 per cent of the total 2-wheeler demand in the Indian market. Motorcycle and moped had been experiencing almost equal level of shares in the total number of two-wheelers. In 2003-04, the share of motorcycles increased to 78 per cent of the total two-wheelers while the shares of scooters and mopeds declined to the level of 16 and 6 per cent respectively. A clear picture of the motorcycle segment's gaining importance during this period is exhibited by the Figures 1, 2 and 3 depicting total sales, share and annual growth during the period 1993-94 through 2003-04.

National Council of Applied Economic Research (NCAER) had forecast two-wheeler demand during the period 2002¬-03 through 2011-12. The forecasts had been made using econometric technique along with inputs obtained from a primary survey conducted at 14 prime cities in the country. Estimations were based on Panel Regression, which takes into account both time series and cross section variation in data. A panel data of 16 major states over a period of 5 years ending 1999 was used for the estimation of parameters. The models considered a large number of macro-economic, demographic and socio-economic variables to arrive at the best estimations for different two-wheeler segments. The projections have been made at all India and regional levels. Different scenarios have been presented based on different assumptions regarding the demand drivers of the two-wheeler industry. The most likely scenario assumed annual growth rate of Gross Domestic Product (GDP) to be 5.5 per cent during 2002¬-03 and was anticipated to increase gradually to 6.5 per cent during 2011¬-12. The all-India and region-wise projected growth trends for the motorcycles and scooters are presented in Table 1. The demand for mopeds is not presented in this analysis due to its already shrinking status compared to' motorcycles and scooters


It is important to remember that the above-mentioned forecast presents a long-term growth for a period of 10 years. The high growth rate in motorcycle segment at present will stabilise after a certain point beyond which a condition of equilibrium will set the growth path. Another important thing to keep in mind while interpreting these growth rates is that the forecast could consider the trend till 1999 and the model could not capture the recent developments that have taken place in last few years. However, this will not alter the regional distribution to a significant extent.

Table 1 suggests two important dimensions for the two-¬wheeler industry. The region-wise numbers of motorcycle and scooter suggest the future market for these segments. At the all India level, the demand for motorcycles will be almost 10 times of that of the scooters. The same in the western region will be almost 20 times. It is also evident from the table that motorcycle will find its major market in the western region of the country, which will account for more than 40 per cent of its total demand. The south and the north-central region will follow this. The demand for scooters will be the maximum in the northern region, which will account for more than 50 per cent of the demand for scooters in 2011-12.


.



2-Wheeler Segment Regions
South West North-Central East & North-East All India
Motorcycle 2835
(12.9) 4327
(16.8) 2624
(12.5) 883
(11.1) 10669
(14.0)
Scooter 203
(2.6) 219
(3.5) 602
(2.8) 99
(2.0) 1124
(2.08)




The present economic situation of the country makes the scenario brighter for short-term demand. Real GDP growth was at a high level of 7.4 per cent during the first quarter of 2004. Both industry and the service sectors have shown high growth during this period at the rates of 8.0 and 9.5 per cent respectively. However, poor rainfall last year will pull down the GDP growth to some extent. Taking into account all these factors along with other leading indicators including government spending, foreign investment, inflation and export growth, NCAER has projected an average growth of GDP at 6.7 per cent during the tenth five-year plan. Its mid-term forecast suggests an expected growth of 7.4 per cent in GDP during 2004-05 to 2008-09. Very recently, IMF has portrayed a sustained global recovery in World Economic Outlook. A significant shift has also been observed in Indian households from the lower income group to the middle income group in recent years. The finance companies are also more aggressive in their marketing compared to previous years. Combining all these factors, one may visualise a higher growth rate in two-wheeler demand than presented in Table 1, particularly for the motorcycle segment.
There is a large untapped market in semi-urban and rural areas of the country. Any strategic planning for the two¬-wheeler industry needs to identify these markets with the help of available statistical techniques. Potential markets can be identified as well as prioritised using these techniques with the help of secondary data on socio-economic parameters. For the two-wheeler industry, it is also important to identify the target groups for various categories of motorcycles and scooters. With the formal introduction of secondhand car market by the reputed car manufacturers and easy loan availability for new as well as used cars, the two-wheeler industry needs to upgrade its market information system to capture the new market and to maintain its already existing markets. Availability of easy credit for two-wheelers in rural and smaller urban areas also requires more focussed attention. It is also imperative to initiate measures to make the presence of Indian two-wheeler industry felt in the global market. Adequate incentives for promoting exports and setting up of institutional mechanism such as Automobile Export Promotion Council would be of great help for further surge in demand for the Indian two-wheeler industry.



INDUSTRY TODAY
Following India's economic liberalization in 1991, the two wheeler industry was opened for 100 percent foreign direct investment. A surge in the country's economic growth rate and purchasing power has fueled a 17% annual growth rate in the Indian two wheeler industry since 1991. The two wheeler industry generates direct and indirect employment to about 6.1 million people as of 2006-07.[3]The automotive parts and cars exports has grown at an annual rate of 30% per year in the 21st century. However, the India's share of the overall global two wheeler industry remains low as of 2007. Increased competitin amongst automobile manufacturers provides for a variety of competitive options for the consumer.[3]
India was one of the largest manufacturers of two wheeler in the world in 2005-06, when it produced 293,000 units. India produced 65 Million tyres during FY 2005-06. India's tyre production meets domestic demand, as well as are exported to over 60 countries.[3]


Two-wheeler industry: Facing a crisis?
he two-wheeler industry has seen an unexpected slump in the current year. Firm interest rates are being cited as the obvious reason for the lack of demand.

The two-wheeler has always been an intrinsic part of the Indian milieu. It offered and continues to offer the Indian middle class the freedom from the clutches of an often non-existent or unreliable public transport system. It offers mobility at a reasonable cost. For a large portion of the population a scooter or a motorcycle is a necessary accessory for their livelihood.

Of late, the two-wheeler industry has been under an analytical microscope with volumes slowing down and even showing a negative growth. Financiers are being more cautious in their lending, leading to greater pressure on volumes. The industry seems to be caught in a negative downturn at the moment but the key question remains — is this downturn temporary or is it here to stay?

From the financiers’ perspective, servicing this industry and this customer segment is an operationally intensive exercise, covering locations that fall outside city limits and being dependent on correspondent banking relationships and a robust collection infrastructure. In the case of a downturn, caution enters the equation as financiers look to keep NPAs under control.

The customer typically belongs to the lower-middle and middle class. For this segment, aspirations have outpaced real income growth leading to a greater propensity to borrow and spend. With rising inflation, this segment has found itself over-leveraged. The hardening of interest rates at such a juncture leads to the customer postponing or deferring a new purchase. This is what has happened to the two-wheeler industry today.

The one-lakh-rupee car is seen to be another threat to the two-wheeler industry but the truth is that the running and maintenance cost and the sheer convenience of a two-wheeler, given our infrastructure, are difficult to replace. However we must wait and judge the aspirational impact of owning a car on the Indian consumer.

This environment has prevailed for the past six months but this is beginning to see a change with inflation showing a definite decline and interest rates showing the first signs of softening. As a general trend the industry has begun to lower interest rates, in a segmented fashion. Given these changes in the environment I expect to see an increase in demand with a certain lag effect — the time it takes the benefits of reduced inflation to impact the customer’s cash flows.

Manufacturers are also working at increased segmenting of the market launching products aimed a newer segments like girls and women. Newer products, such as electrically powered motorbikes are also being introduced in the market. The market also is seeing a lot of action in the 150cc plus market with new models slated to hit the market. At the same time, brand building and promotional spends of top manufacturers have not shown significant reduction, keeping the category in the minds of potential customers. I expect that the festive season will bring in price-offs and discounts along with other promotional offers that will provide another fillip to sales.

While this will have a temporary impact, it is imperative that the manufacturers, dealers and financiers work together even more closely. Manufacturers have a very strong relationship with their suppliers and dealers but very often view the financier as an external ‘service provider’. The financier has to have greater integration in the entiresupply chain, working towards maximising customer solutions and services.

To sum up, I would like to state that all the economic indicators remain positive. The demographics of the country remain favourable for the industry and there is a tremendous tailwind in the economy and a spirit of prevailing optimism in the country, which makes me very confident that a turn around in the two-wheeler industry is just around the corner.













FUTURE TRENDS
The Indian two-wheeler industry finds itself amongst the list of casualties of the global financial disaster. Job-losses, pay-cuts, low consumer confidence and cautious stance of vehicle financers has had an adverse impact on the domestic two-wheeler sales that registered a modest 2.6 % growth in financial year 2008-09 (FY-09) over FY-08. Of late, cheaper petrol, comparatively lower interest rates and the excise duty cut due to the stimulus packages have brought in some relief for this disturbed industry.
In this phase of muted growth, company-level performances varied significantly with some excelling and some putting up a weak show. The market leader Hero Honda registered a healthy growth of 12 % in its domestic sales whereas Bajaj Auto disappointed with its domestic sales plunging by 23% in FY09 over FY08. Likewise, TVS Motors saw its domestic sales dropping marginally by 1.4 % in FY09, but in contrast, Honda Motorcycles and Scooters India (HMSI), a wholly owned subsidiary of Honda Motor Company, recorded a robust 16.5 % growth in domestic sales in India. According to CARE Research, a large bouquet of two-wheeler models and variants to offer, coupled with strong-hold in entry level segment comprising 75 – 125 cc motorcycles with a strong focus on rural markets has benefited Hero Honda , whereas soaring demand in the easy to operate and light weight gearless scooters has benefited HMSI.
CARE Research, in the recently released report on ‘Indian Two-wheeler Industry’, observes that the urban market for two-wheelers is largely penetrated with nearly 57 of every 100 youths that earn an income to support the ownership of a two-wheeler (i.e. the target population) already owns one. In fact, in some big cities, nearly three-fourths of the target population own a two-wheeler. Thus, the opportunity is limited in urban areas. However in case of rural areas, merely 15 % of the target population owns a two-wheeler and thus the opportunity is humungous. Lower penetration in rural areas can be attributed to supply side constraints due to widely dispersed target population which has discouraged the penetration of two-wheeler manufacturers, dealers as well as vehicle financers in these areas. However, the income levels of rural households are rapidly increasing and more and more villages and smaller towns are turning into attractive market for consumer products, including two-wheelers Furthermore, rural households are largely insulated from the dents of the global financial crisis.
“Rural India would be the next growth frontier for India’s two-wheeler industry” remarked Revati Kasture, Head, CARE Research. “Excise duties are already at lower levels and the scope of expansion in target market on account of reduction in the cost of ownership is very limited. In light of the same, along with already high penetration in urban markets, rural India offers big opportunity to the industry. Ability of the players to increase their focus and penetration in these markets would determine their fortunes in next few years” added Kasture.
CARE Research estimates the domestic two-wheeler demand to be somewhat weak for the next 9 – 12 months with sales foreseen to grow by 6.7 per cent in FY10 to 7.9 million units from 7.4 million units in FY09. The demand is likely to pick up thereafter with economy stabilizing and resumes its buoyancy. CARE Research expects domestic two-wheeler sales to grow to 11.3 million units by FY14, signifying a compounded annual growth rate (CAGR) of 8.8 per cent.
“Easy availability of cheap two-wheeler finance would be one of the critical factors in achieving the said growth rate as nearly half of the two-wheeler sold in India are purchased on finance” says Mr. DR. Dogra, Deputy Managing Director, CARE Ratings. “The macro economic outlook still remains weak, with GDP forecasted to grow by 6.5 per cent in FY10, the slowest since FY03. The consumer confidence level would take some time to improve. Furthermore, the players in TW finance industry are still cautious in lending” added Dogra.

CONCLUSION
In conclusion we can say that there are great opportunities and possibilities in the automobile sector. But hike in the fuel price is influencing the market of this industry.
There is a need of a very liberal policy for the fuel prices and requires a great good deal with fuel supplying countries. Though the performance of the industry is better instead of high and unfavorable fuel policy.