India: motorbike mad but it's no easy rider

The once-ubiquitous scooter has been overtaken by the motorbike in India's commuting race. Ray Marcelo reports on why motorbike manufacturers like Honda are riding on a boom

It is a common scene in India's daily commute. Buses, cars, taxis and trucks jostle with roaming cows and the occasional elephant for space on the road. In between this chaos, swarms of motorbikes weave in and out, claiming spare metres at the front of traffic queues. In India's commuting contest, motorbikes are looking like winners.

Motorbikes are riding on a boom that last year saw India produce around three million units, making India the second largest motorbike market in the world, after China's. Motorbikes now account for almost six out of 10 vehicles on Indian roads. In sales terms, four motorbikes are sold for every new car.

Yet the penetration of two-wheelers (motorbikes, scooters and mopeds) in India remains low. There are, for instance, about 210 two-wheelers for every 1,000 families in India compared with a figure of 600 per 1,000 in Thailand. But Indian two-wheeler manufacturers argue that this low base means there is plenty of room to grow.

Sales rolling

Motorbike sales are indeed soaring, supporting manufacturers' optimism of the potential in India's two-wheeler market. During 2001/2002, there were around 2.9m motorcycles sold, riding on the back of sales growth of around 30% over the past two years, the Society of Indian Auto Manufacturers reports.

To gain some perspective of the size of India's motorcycle market, consider that, in Britain last year, the combined sales of motorbikes, scooters and mopeds reached 169,302 units. In India, during February 2003 alone, the top three motorcycle companies sold 272,727 motorbikes. Such massive sales volumes no doubt flow from the demand for affordable motorised transport among India's 1.3bn population.

India, like many other developing countries in Asia, suffers from poor public transport infrastructure, so motorcycles are the cheapest mode of transport for people who can afford little more than a bicycle or a motor scooter. Even among India's emerging middle class, a motorbike is often the second vehicle after the family car.

For these reasons, utility and a cheap price are the chief qualities of motorbikes that are sold in India. Rare are the fancy street versions of racing bikes or the 1,500cc Harley-Davidson-style cruisers popular in rich countries. In fact, the most popular models sold by Hero Honda, Bajaj Auto and TVS Motors, India's three leading motorbike manufacturers, are simple commuter bikes, with modest 110cc-150cc sized engines.

These entry-level motorbikes now claim about 70% of India's two-wheeler market. And their rise has come at the expense of the once-ubiquitous motor scooter. While Vespa-style motor scooters appear to have become trendy in London and New York, Indian consumers are leaving them for motorbikes. There are several reasons for the shift. Motorbikes offer better handling on India's shoddy roads and, in most cases, come with modern fuel-efficient four-stroke engines that are cheaper to run than a 110cc two-stroke scooter.

Moreover, Indian consumers are benefiting from the twin virtues of cheaper motorcycles and rising incomes. Most of the popular commuter motorbikes cost between Rs32,000 to Rs40,000 ($666 to $830), which is little more (around $100) than the price of a new scooter. Strong rural demand is also driving motorbike sales. With 70% of India's population living in the countryside, manufacturers report that, last year, rural sales boomed following a bumper harvest in 2001.

A typical Indian motorbike-buyer is hard to describe, however. The industry provides no data showing a breakdown of motorbike ownership between income classes or between the sexes. The advertising campaigns of the main manufacturers suggest, though, that (young) men remain the traditional target. Hero Honda's advertising hints at masculine themes, with motorbike brand names such as 'Passion' and 'Ambition' that are promoted by male celebrities, including a Bollywood action star and several members of India's cricket team. Others go straight to the point: Bajaj Auto's slogan for its 150cc 'Pulsar' bike is 'Definitely Male'.

For consumers like Suresh Krishnaswami, 25, motorbike ownership did not need prompting from advertising. A self-described motorbike enthusiast, back in 1999, he ordered Hero Honda's 250cc sports bike months in advance. 'Everybody was booking ahead,' Suresh says. 'They [Hero Honda] weren't manufacturing that many back then because they didn't know how the market would react, but it was a runaway success.'

Cruising

India's three motorcycle manufacturers are indeed doing very well, reflecting the good times for motorbikes. By the end of last year, Hero Honda saw its profits leap by 90% while Bajaj Auto posted a 30% rise in sales and a staggering 283% rise in net profits. In February, TVS Motors sold 61,265 motorbikes, representing a year-on-year growth of 31%.

Most of the companies credit the past year's sales triumphs to several factors: first was a round of cost-cutting combined with higher sales volumes over the traditional 'festive season' of September to November. Second was the launch of new products from basic commuter models to sporty motorbikes, all supported by relentless television and print media advertising. With cricket one of India's obsessions, the Cricket World Cup taking place in the past couple of months has opened a new front for television advertising campaigns by the major firms.

One other factor driving the popularity of motorbikes is the increasing supply of bank credit. Consumer finance is only now starting to gain favour among Indian consumers. But with Indian interest rates at 6.25%, their lowest levels in 30 years, banks have been quick to offer motorbike-specific loans. One bank, ICICI Bank, currently claims the largest share of car and two-wheeler loans among India's banks, helped in part by creative marketing. For example, thanks to a sponsorship deal, a leading auto magazine's 'bike of the year' award now carries ICICI Bank's name.

On the horizon

As India's motorbike market deepens, it also offers a lesson in how foreign firms can find success in India's often infuriating business climate. The three main motorbike manufacturers have been involved in partnerships with a foreign (Japanese) firm. Japan's Honda is still in a joint venture with north Indian engineering firm Hero. Kawasaki shares technology with Bajaj. Suzuki once had a partnership with TVS Motors. What these partnerships did was to design and build a product that fitted a need (reliable transport) then sold it at a price affordable for middle class and lower income households.

Still, threats to India's motorcycle industry remain. Despite the manufacturers' association claiming demand will grow at 25% this year, one of the key drivers of last year's growth - rising farm incomes - is under threat from recent droughts. On the supply side, several of the joint ventures are due to end this year and in 2004. Several Japanese firms will soon strike out on their own against their former partners. More competition will also drive prices down, which will help consumers but will likely squeeze manufacturers' margins. Cars may also start looking attractive when dealers pass on tax concessions from the Government's recent budget.

One other threat comes from China. India's customs duties still offer protection for the local motorcycle industry against Chinese motorcycle imports: India currently levies a tariff of up to 35% on imported finished products. But once this tariff wall comes down in the next few years, analysts expect cheap Chinese motorbikes will pour into India's market, as they have done in other Asian markets like Thailand and Vietnam. By then, Indian manufacturers would hope they have established brands that Indian consumers can trust. But in a country where incomes are often pared down to the last cent, severe price competition looms.

Ray Marcelo is a journalist based in India.