Will Bajaj become a hero?

If measured by financial as well as operational performance, the action in the automobile market this fiscal has shifted from the four-wheeler to the two-wheeler companies. Sales at Maruti Suzuki had slumped much before the labour trouble erupted. Rival Hyundai did no better or else this was the best time for it to displace Maruti. Much in contrast to the performance of the car manufacturers, the two-wheeler makers are doing brisk business with rising sales and better financial earnings. Naturally, then the question arises whether there's a possibility of a new two-wheeler leader emerging in the country in the near future? To put the question straight and simple: Is there a possibility of the once largest two-wheeler manufacturer Bajaj Auto to displace Hero MotoCorp (until recently Hero Honda) as the largest two-wheeler company by volumes? Or will a dark horse and much later entrant, Honda Motorcycles and Scooters India (HMSI), outpace both? Before we proceed to examine the answer to this question, a little of bit of history is necessary.

Bajaj Auto used to be the country’s largest two-wheeler manufacturer for long and the scooters it made had, once upon a time, such a long queue of buyers that if a father booked the scooter, if all went well, the grandson would be lucky to get its possession! But India’s economy was different then. By late 1990s, not only did the country’s economy change but also the two-wheeler market. Out went scooters and what replaced the consumers’ choice was motorcycles—the new trendy 100-cc ones made in collaboration with foreign manufacturers, chiefly the Japanese. By 2000-01, Hero Honda had overtaken Bajaj Auto in terms of volume sales on the back of motorcycles and Bajaj Auto also decided that it will concentrate on bikes rather than scooters. What started thereafter was a race between the two for the top slot, which continues even today.

A slight digression here would be pertinent. Hero Honda, a newcomer overtaking an established leader like Bajaj Auto was not the first or only case in the country’s auto history. Prior to it, Maruti overtook Hindustan Motors in 1983-84. In other sectors also similar examples are available. What has not happened largely so far though is that once an established leader has been overtaken by an emerging player, the former has not been able to reclaim its original position. So, Hindustan Motors could never ride back to glory. In other sectors as well—for example, in telecom, where BSNL in terms of fixed as well as mobile connections lost out to Bharti Airtel in 2008 and today can’t even dream of reclaiming its old position.

However, Bajaj Auto is no Hindustan Motors or BSNL. It continues to be a more profitable company than Hero MotoCorp and has successfully challenged Hero’s numero uno position. In fact, in the latter part of 2006, it had almost closed the gap with Hero. In August of that year, the gap between Hero and Bajaj had reduced to just around 28,000 units where earlier, on an average, it used to be around a lakh units. It seemed that Bajaj had reached the touching destination and within a few months—in 2007—the original number one would have wrested back its lost position. But it did not happen and Hero slowly widened the gap. According to the sales figure of September this year, the total motorcycle sales of Hero MotoCorp stand at 5,01,028 units as against Bajaj’s 2,55,786 units.

In its fight with Hero, Bajaj did make a couple of mistakes. One, when it decided to focus on bikes rather than scooters it was largely on the assumption that the market then had started preferring them. Data at that point supported that also. However, what was lost was that the scooters Bajaj then made were on the older technology and style. Much later, the Japanese firm HMSI rode in India and made scooters once again trendy and saleable. For instance, in November 2008, HMSI sold around 60,000 scooters while Bajaj could sell only a measly 700. In fact, that month Bajaj was displaced from the second place to third by HMSI on the back of only scooter sales by the latter.

The other mistake Bajaj made was that in 2007 when it was closing ranks with Hero, it decided to exit the 100-cc bike market and instead focused on the premium segment of 125 cc and above. The move was strategic because what Bajaj was trying to do was to bring the fight to its bastion because it was stronger than Hero in the premium segment. Even today, that strength continues. For instance, the 75-cc to 125-cc segment contributes only 28.7% to Bajaj’s overall sales against Hero’s 93.8%. However, when it comes to 125-cc to 250-cc segment, Bajaj’s sales contribute 58.28% whereas Hero’s only 6.19%. The strategy was that if Bajaj could make bikes of 125 cc and beyond and price them at around the 100-cc categories, then it would have decimated Hero. There was merit in this strategy then as Bajaj had around then closed in on Hero Honda following the launch of Pulsar (150 cc and 180 cc), followed by Wind (125 cc), and Discover (125 cc).

However, the strategy did not work as Hero did a couple of launches and re-launches and strode ahead and Bajaj returned to focusing on the 100-cc segment also.

Much later in 2009, Bajaj finally made a total exit from the scooter market because the gap between it and HMSI had so widened that it did not make sense to re-focus on it any further, so today it has only bikes in its arsenal to fight the market share battle.

However, much has changed in the broader landscape once again. Hero has broken off with Honda and is on its own now. It may face some disadvantage on the bike front but is free to make scooters also now. Similarly, unlike yesteryears, Honda is now free through its wholly-owned subsidiary to enter the bike market, which it did not do until the joint venture was intact. This brings a serious challenge for Hero MotoCorp.

The challenge for Bajaj has also got bigger because apart from competition from Hero it will now also have to contest with HMSI, which apart from scooters will now also have bikes in its arsenal. The fight would certainly be interesting and how it would pan out would determine whether the pecking order born almost a decade ago remains intact or undergoes a change. Keep watching this space!