Car sales may spoil 2-wheelers party

With consumer preferences swiftly shifting to cars, the two-wheeler market is expected to decelerate in two or three years, after a dream run of over a decade.

Two-wheeler sales grew 12.5 per cent in April-February 2006-07, down from 13.63 per cent in the same period of the previous fiscal year.

Growth in passenger car sales, on the other hand, accelerated from 11 per cent to 25 per cent during the period. A Merrill Lynch report says the growth figure for the two-wheeler market will fall to a single digit in the next two years.

The anticipated slowdown in the market is also reflected in the way leading players like the Munjals of Hero Honda, Bajaj Auto and TVS Motor are getting into new product lines to hedge their business risks.

The Munjals are diversifying into three-wheelers and cars, Bajaj Auto is working on a small truck (of the same size as Tata Motors' hugely popular one-tonner Ace) as well as a passenger car, and TVS Motors is eyeing the three-wheeler mart.

Analysts say two-wheeler companies are now competing head-on with car producers, and things will only get worse for them with Tata Motors readying to launch its Rs 1-lakh car in the third quarter of 2008 fiscal. JD Power, a market research organisation, reckons that 27 per cent of two-wheeler customers have switched to cars in the last one year.

"Cars satisfy status aspirations and make a lifestyle statement, besides meeting all mobility requirements," says Mohit Arora, J D Power Asia Pacific's India director.

Some analysts say the shrinking profit margins in the two-wheeler business may also sap the enthusiasm of companies to rev up the market with new launches.

According to Merrill Lynch, the new capacities planned by various companies will worsen the situation and their operating margins will fall to 8-10 per cent by 2009 from 10-14 per cent now.

"India will follow Japan, where currently 6 million cars are sold against 1 million two-wheelers, from the sales pyramid of one million car sales against six million two-wheelers some three decades back," predicts Arvind Jain, an analyst with Religare Securities.