Inflation, tighter loans slows down two-wheeler sales

The sale of two wheelers has slowed down. Inflationary pressures and the tightening of financing over the past few months have taken their toll. 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 in comparison to April 2006, Bajaj Auto and TVS Motors saw sales dip by 13 per cent and 16.03, respectively. 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.

Inflationary pressure on the middle class was affecting sales, said Chandramouli. Around 50 per cent of people who buy two wheelers are far from rich being low level self-employed people and small businessmen or even daily wage earners, masons and plumbers. 'These people may decide to defer purchases, as prices rise,' he said.

Tightening of lending norms by finance companies like ICICI Bank, HDFC Bank, and Centurion Bank is the other crucial factor. Over 60 per cent of two wheelers purchased are through bank financing. ''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,' said a banker. 'Some people may find it difficult to make a down payment of ₹6,000 against ₹2,000 earlier,''he admitted.

Sales of two-wheelers have slowed down in states like Uttar Pradesh, Bihar, Haryana and Rajasthan. Despite the marriage season in April and May, sales in these states have been growing at only 2-3 per cent.

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.