Manufacturers and dealers stay cool despite rise in two wheeler inventories

Monday 02 April 2012, 10:32 AM by

The number of units present at two wheeler dealerships is increasing across India since sales are low. This drop in sales is due to a slump in demand in rural areas and a strong comparison base (owing to more sales in 2011). Despite this, dealers are not concerned as they associate the fall in sales to a seasonal decline in demand for bikes and scooters.

Inventory figures showed an increase in March owing to sales not gaining traction in the market in line with forecasts during the festive season. In a few cases, the inventory levels, which should usually fall between 21 and 30 days, have crossed the 45 day mark. The two wheeler segment of the Indian auto industry has observed dwindling demand since October 2011.

Between April 2011 and February 2012, the two wheeler segment registered growth of 14.77 per cent, reported Society of India Automobile Manufacturers Association (SIAM). This figure is much lesser than the 26 per cent increase in sales shown by the segment during the same time in the previous year. On the other hand, industry source say that the industry has seen a growth of only 6 per cent at the retail level. Therefore, dealerships have begun storing vehicles in order to meet the expected rise in demand.

Regarding this, a dealer of Bajaj Auto in Mumbai said, “Most of the manufacturers, over the year, have increased their production to meet the growing demand. Dealers started stocking products due to this, which eventually led to inventory pile-up.” As per a Hero MotoCorp dealer operating in Mumbai, the continual rise in cost of petrol and the increase in interest rates on vehicles are also taking their toll on sales.

On the other hand, manufacturers of two wheelers state that they have not registered cases of inventory pile up. K. Srinivas, President, Two-Wheeler Unit, Bajaj Auto, commented, “Our inventory levels do not go beyond 30 days. We only bill what we can retail. The fourth quarter has not been very good for the industry. Considering the current situation, the industry will not grow beyond 5% during fourth quarter.”

Rural areas account for the sales of approximately 55 to 60 per cent two wheelers in India. Regarding this, Srinivas said that the weakening rural economy has affected the demand for bikes, scooters and tractors in the market.

Kartik Jhaveri, the dealer of Honda two wheelers in Mumbai stated that growth has taken a hit on the whole, though products like Unicorn, Shine and Activa are still selling in decent numbers. According to him, the Japanese manufacturer has raised manufacturing output, resulting in lower wait list. He also quipped that demand slackens after the festival of Gudi Padwa and it is expected that sales will see a hike from June.

Two analysts with Citi, Jamshed Dadabhoy and Arvind Sharma, commented that the industry has seen an increase in inventory levels. According to them, “Estimates range from 3-4 weeks to around 6-8 weeks (at an industry level). The reasons alluded to are a combination of pre-buying before the Budget, slackening consumer confidence in the wake of falling realisations for crop prices and base effects.”