Two-wheeler to car sales: Record low ratio shows Covid impact on poor

The recent trend in two-wheeler sales in the domestic market suggests that the economic slowdown and Covid-19 have taken a bigger economic toll on those at the lower-income ladder. Two-wheeler makers have reported a much sharper decline in their sales volume in the domestic market than car and sports utility vehicle (SUV) manufacturers and the corresponding ratio is now at an all-time low.

Domestic sales of two-wheelers when annualised -- based on the figures for the first five months of FY22 as provided by Society of Indian Automobile Manufacturers (SIAM) -- would be down 21 per cent YoY, the lowest since FY11.

“The Covid-19 lockdown hit the poor and those at the lower-income ladder in the services industry much harder than high-income earners in white-collar jobs. This has badly hit the demand for motorcycles and scooters -- the prime mode of transport for the majority of working people in the country," says Madan Sabnavis, chief economist, CARE Ratings.

In contrast, sales of passenger cars, SUVs, and multi-utility vehicles or vans -- together clubbed as passenger vehicles (PVs) -- have bottomed out after the demand contraction in FY20 and FY21. Domestic sales of PVs were up 1.2 per cent on an annualised basis (based on the April-August 2021 figure). However, volumes were still down nearly 19 per cent from FY19 levels. 

Automakers sold 1.14 million units of passenger vehicles in the April-August 2021 period which translated into an expected sales volume of around 2.74 million in FY22, up from 2.71 million in last financial year.

As a result, the ratio of two-wheeler to passenger car sales declined to an all-time low of 4.4X in the first five months of FY22, from 6.3X in FY20 (a normal year). Analysts say that a sharp decline in two-wheeler sales may also hit car sales a few years down the road as most two-wheeler users upgrade to four-wheelers.

“Auto ownership in India largely starts with a motorcycle or scooter, and then people upgrade to entry-level cars and eventually to SUVs as their income rises. So, such a big decline in two-wheelers sales is bad for the growth potential of the four-wheeler industry,” says Shailendra Kumar, CIO Narnolia Securities.  

Two-wheeler makers, such as Hero MotoCorp, Bajaj Auto, TVS Motors, and Honda Motorcycle & Scooters India (HMSI), together, sold a little less than 5 million units in the domestic market during the April-August 2021 period, translating into annual sales of around 11.97 million units.

This will be nearly 44 per cent lower than the industry's peak domestic sales of 21.2 million units in FY19. Overall sales in FY22 may be higher or lower if the demand trend changes in the second half of FY22.  Two-wheeler makers had sold 15.1 million units in the domestic market in FY21, down 13.3 per cent from 17.4 million in FY20.

The current decline in two-wheeler sales is the longest drought for the industry since SIAM started reporting sales data beginning FY95. For example, two-wheelers sales had declined 7.9 per cent in FY08, following the 2008 Lehman Crisis, but volumes picked up from the next year itself. Before that sales had declined by a modest 1.6 per cent in FY98.

Analysts fear that this time, it may take many years of double-digit growth for the industry to recoup the loss in sales volume. At the current level of sales, it would require a 77 per cent jump in volumes to reach the sales volume achieved in FY19.

In contrast, PVs sales are now down just 19 per cent from the peak in FY19. Analysts attribute this to the fact that cars and SUVs are largely bought by high-income earners in sectors, such as IT Services, banking & insurance, and the public sector.  

“There were much fewer job losses or salary cuts in these white-collar industries and many companies in these sectors actually gave salary hikes to their employees. As a result, car sales recovered faster than two-wheelers,” says Kumar.

But even in the PV market, the industry leader, Maruti Suzuki, has complained about declining sales at the entry-level segment, even as the high-end and SUV segment has seen an uptick in demand.

Economists also attribute this to a sharp rise in income inequality in India in recent quarters. “The income divide between the poor and those in the lower-middle-class has widened greatly due to Covid-19 and the lockdown. In fact, many rich people are now better off than a year ago, thanks to salary hikes and a rally in the assets market,” adds Sabnavis.

He expects things to normalise over the next few quarters as most of the services sector industries start working at their full capacity by March next year.