Two-wheelers pile up in dealers' backyards as sales dwindle

Sluggish demand for two-wheelers on the back of high petrol prices and slowing rural sales is saddling dealers with unsold stocks, though the top two-wheeler makers continue to increase production.

Market leader Hero Motocorp Ltd dispatched more than 500,000 units per month over the last nine months to dealers. But a dealer for the motorcycle maker in New Delhi said his stockpile has increased to its highest in three years. “Sales have completely collapsed,” a Mumbai-based dealer said.

A Delhi-based dealer of Honda Motorcycle and Scooter India Pvt. Ltd (HMSI), the country’s third largest two-wheeler maker, too, said his inventory was piling up, perhaps for the first time since HMSI began operations in 2001.

“I have parked motorcycles at my residence as there is no space left in my stockyard,” said the dealer. The local arm of the Japanese bike maker, which always had demand outstripping supplies, has embarked on an aggressive expansion plan, which the dealers cite as a main reason for the stocks building up.

“Sales are typically low at this time of the year, but this year has been worse,” said a Mumbai-based dealer for Bajaj Auto Ltd. Inventory at his dealership has risen by 10-12% in the past two months compared with a year ago, he said.

None of the dealers agreed to be identified for this story.

Two-wheeler sales in India expanded at a brisk 18% in the first half of fiscal 2011-12 but began losing traction and growth dropped to 12% between October and January.

Anil Dua, senior vice-president, marketing and sales, at Hero Motocorp, denied there was an inventory pile-up with Hero’s dealers. Hero maintains stock levels of two to three weeks across dealers, he said.

“What’s playing on everyone’s mind is the 25% growth (in sales) seen in the last two years,” he said, adding the current scenario has to do with cyclicality of the business. “What we are seeing now is normal, with pipelines not being empty and waiting periods disappearing. There are sufficient stocks but there are also sufficient customers.”

Analysts expect sales growth to contract to a single digit in the months ahead.

Surjit Singh Arora, an analyst at domestic brokerage Prabhudas Lilladher Pvt. Ltd, said the slowing sales can be attributed to a high base effect, lower farm income and incessant increases in petrol prices.

Besides, while minimum support prices for crops—the price at which the government buys grains for public distribution and which functions as the floor market price for the grains—haven’t softened compared with the previous year, high input costs have dented the rural purchasing power, he said. “Moreover, with the overall sentiment being weak, people tend to postpone car and two-wheelers which are items of discretionary purchase.”

Rural sales contribute to 45% of Hero’s total sales. Dua said while sales from the rural regions are replicating the urban trend of slowing demand, there was no sharp decline since.

Hero, Honda and Bajaj are on an overdrive to increase production. Two-wheeler makers produced 12.78 million units between April and January, an increase of 17% over the year-ago period, according to industry lobby Society Of Indian Automobile Manufacturers.

Naresh Rattan, vice-president, sales and marketing, Honda, said his firm plans to add 1.2 million customers by July and has bookings for 300,000 motorcycles and scooters.

K Srinivas, president, motorcycles, Bajaj Auto, said retail sales have been slowing since October but Bajaj has managed to keep inventory in check and has been aligning despatches as per demand. “If all the manufacturers had been billing as per actual sales, the sales would have been in the negative terrain during the last two months,” he said.

In India, auto firms report despatches to the dealers and not customers.

Dealers do not expect festivals like Gudipadwa (Maharashtrian new year on 25 March) or the marriage season in the North that begins in April to perk up demand. They expect inventory levels to rise further as manufacturers despatch more units in anticipation of demand during these occasions.