Economic slowdown along with spike in inflation has adversely affected consumer sentiment, which in turn has led to slower sales of two-wheelers, with volumes dropping in the past five months
Sales of motorcycles in India fell by 9.20 per cent in June 2013 - fifth consecutive month of decline -- while the total two-wheeler sales were down by 4.50 per cent last month, according to the Society of Indian Automobile Manufacturers (SIAM). Sales of passenger cars and bikes have been hit hard in the past few months, as stubbornly high inflation, rising fuel prices and a subdued economy have prompted consumers to put off discretionary spending. So much so, SIAM has called for a stimulus from the government to improve outlook for the important industry.
India's two-wheeler sales have contracted in the past four months (Feb-May 2013), the longest losing streak since the 12-month period ended February 2008, as a challenging economic environment has kept the consumer demand muted. The slowdown in the growth of two-wheeler sales has occurred a couple of months after CPI for Industrial Workers (CPI-IW) hit the double-digit mark in April 2012. Since then, the CPI-IW has been hovering in the 9-12 per cent range. The new CPI (combined) has been around 10.0 per cent mark since April 2012 before softening in April-May of this year.
On the other hand, the growth rate in two-wheelers has moderated from mostly double digit levels to single digits before contracting in Aug-Sept. 2012. The steep rebound in October 2012 was more of a blip, with sales moderating yet again in the subsequent months till date. The last time two-wheeler sales in India took a big hit was between March 2007 and February 2008, as the global financial crisis had a negative impact on India's economic growth, which resulted in subdued consumption demand.
Two-wheeler sales then steadied for a while before contracting for four straight months between October 2008 and January 2009. The recovery in two-wheeler sales from the 2007-08 slowdown lasted till July 2012. Sales are not a significantly big-ticket item in the overall consumption basket of an average Indian household. Also, sales of two-wheelers, especially of the commuter variety (100cc-125cc), form a major chunk (~ 78 per cent to 83 per cent) of the total automobile volumes.
They are a good indicator of the rural demand, where the commuter bikes (with lower 100-125 cc motor) and scooters are the preferred mode of transport. The economic slowdown of the past 2-3 years, along with the spike in inflation, has adversely affected consumer sentiment. That in turn has led to slower sales of two-wheelers, with volumes dropping in the past five months.
However, a good start to the southwest monsoon, upcoming festival demand, government's pre-election spending and steady fall in inflation are likely to lead to better consumption demand in the coming months. Two-wheelers will be one of the natural beneficiaries of the impending recovery in the domestic consumer sentiment.