Finance a concern for Indian two-wheeler makers
11 February 2008Indian two-wheeler makers suffered a setback with due to a slack demand owing to the shortage in retail finance. Most companies, including India's leading two-wheeler makers, are working out plans to overcome this phase.
In 2007, two private banks, ICICI and HDFC Bank, placed two-wheeler loans under the high-risk category due to the rising defaults in payments. According to sources, the high default was a result of the increasing interest rates and poor collections in the rural markets. The two banks have pulled back almost 20 per cent exposure to the segment.
During this period, three top two-wheeler companies reported a drop in their sales; sales of 7.5-million units fell by 8 per cent in the first three quarters.
According to Society of Indian Automobile Manufacturers, Hero Honda, the market leader reported a drop of less than 0.5 per cent during this period. Bajaj Auto and TVS also recorded decline of 18 per cent to 19 per cent respectively. The whole industry declined by 4 to 5 per cent last year.
Interestingly, it was found that Hero Honda buyers have a greater tendency to self-finance their purchases. "We are doing better than the industry. In the motorcycle segment, we grew by 2 per cent between January and December last year," said Anil Dua, head of marketing and sales, Hero Honda.
Most companies are now in a self-help mode, trying to make most of the finances available themselves. TVS motor is in talks with leading banks to provide capital to the Groups's finance companies, which could become a market lender.
Bajaj Auto would tap the Groups' finance arm, Bajaj Auto Finance to expand its network. Bajaj will take its help to develop a new business model in six months.
In the current scenario, the cumulative capacity of the three leading companies is 9.5 million, with almost 2 million going unused. However, the companies are still optimistic looking at the drivers for this business. Some argue that the GDP growth at 9 per cent, investment in infrastructure and high need for mobility will ensure that this difficult phase will not last beyond a year.