Inflation, tighter loans slow down two-wheeler sales

Inflationary pressures and tightening of financing is slowing down sales of two-wheelers in the country. The two-wheeler industry which has been growing at 16-18 per cent in the past five years, grew by only 11 per cent in 2006-07.

While market-leader Hero Honda increased sales by 4.9 per cent in April 2007 versus April 2006, Bajaj Auto and TVS Motors saw sales dip by 13 per cent and 16.03 per cent respectively. In fact, TVS' motorcycles fell sharply by 34 per cent.

''It is a technical correction. Sales may remain subdued for the next three-four months after which there could be a recovery from September-October,'' said R. Chandramouli, senior vice-president, TVS Motors.

He said there are two factors, which are slowing down sales in the market. One, there's inflationary pressure on the middle class (50 per cent of people who buy a bike are self-employed people, small businessmen, daily wage earners, masons, plumbers), said Chandramouli. These people may decide to defer purchases.

But perhaps a bigger factor has been a tightening of lending norms (60 per cent of all bikes sold are financed) by finance companies like ICICI Bank, HDFC Bank, and Centurion Bank. ''Earlier, the finance companies were more liberal and gave you loans with just 5 per cent down payment; now they're insisting on 15 per cent down payment,'' said Chandramouli.

This is because defaults on two wheeler loans are up from 2 per cent a year ago to 5 per cent today, said a bank executive. ''We are not talking to the guy who cannot bring 15 per cent down payment. Some people may find it difficult to make a down payment of 6,000 (15 per cent) against 2,000 earlier,'' said a banker.

Also, sales of two-wheelers have slowed down in the states like Uttar Pradesh, Bihar, Haryana, Rajasthan. Despite the marriage season in April and May, sales in these states have been growing at 2-3 per cent. ''This is probably due to the less-than-normal monsoon and pending disbursement of sugar cane arrears,'' said a senior executive with another two-wheeler major.

Two-wheeler sales have slowed down since November 2006. Sales have been growing at 3-4 per cent since October, when sales were unusually high due to the festive season. ''When inflation is low and finance is easily available, 10 per cent more people buy. When inflation is high and financing tight, that many people may defer purchases,'' added Chandramouli.

The two-wheeler industry would hope that they could ride the 20-per cent swing in sales for the next three-four months without losing sleep.