Bajaj Auto, Hero MotoCorp in price war for two-wheeler market share

The country’s two biggest two-wheeler makers have quietly begun a price war and are banking on aggressive discounts and schemes, even in a month that typically sees low or no discounts, to claw market bike share in a period. This, when inventory has been piling up with dealers.


Hero MotoCorp published full page ads on Monday, announcing an attractive insurance scheme that gives buyers five-year own-damage accident cover. The company’s move is seen as a defensive strategy to thwart competition from Bajaj Auto.


Its Pune-based rival, Bajaj, has been turning the heat on Hero's entry-level models through aggressive pricing. Before last year’s festival season began, Bajaj launched a scheme that gave buyers five years of own-damage insurance, five years of warranty and five years of free services.


Mitul Shah, analyst at Reliance Securities, said the move may be due to the safety regulations that takes effect from April 1 and makes it mandatory for all bikes to come fitted with ABS (anti-lock braking system) and CBS (combined braking system).


According to sources, more than half of the models sold by Hero are without these, so through the offers the company may be trying to liquidate the stock. “One has to see if the schemes continue after April, if it does, it is indeed price war,” Shah said, and added that the current scheme will be margin dilutive.


This is the company’s attempt to protect its turf in the entry-level two-wheeler segment, said an industry executive aware of Hero’s plan. “Promotions are required to push up sales when sentiment is low. There was a muted festive season, which led to glut of inventory in the system. While it was expected that things would improve from January due to the wedding season, it didn’t pick up as expected,” the executive said.


Also, the cost of acquisition of a bike has gone up due to high insurance cost. “Insu­rance cost is now almost 10 per cent of a bike’s cost. With the scheme, Hero is proposing to take over the insurance cost,” the official said.


Hero dealers said, on an average, the unsold stock stands at six weeks as against the norm of three. "We don’t mind shelling for the schemes as long as we can reduce inventory," a dealer said.


Two-wheeler sales in India, the world’s largest market for such vehicles, have been in the slow lane for five months. Domestic two-wheeler sales fell by 5 per cent in February over the same month last year. While scooters and moped sales declined by 10 per cent and 5 per cent year-on-year, respectively, motorcycles volume fell by 3 per cent year-on-year after a long time.


Bajaj, too, has been playing the price and discount game. In addition to the entry-level segment, Bajaj aims to grow its share in the 110-125cc category, Kevin D’sa, Bajaj’s president, finance, had said. The firm aims to achieve a 20 per cent domestic market share this fiscal year, he said, and sees 25 per cent as the long-term goal.


Sanjay Bhan, head of sales and after-sales at Hero, conceded the pressure on inventory and the trend of the battle ground shifting to the entry-level segment. “There is a lot of downgrade that we are witnessing wherein because of increased cost, there is a certain consumer type who is settling for cheaper bikes,” he said in a conference call with analysts after Q3 earnings.


Others remain optimistic and believe it’s only a matter of time and normalcy will be restored once demand revives. Y S Guleria, senior vice-president, sales and marketing at Honda Motorcycle & Scooter India, said the firm would continue to bet on the middle-weight premium two-wheeler segment.


“It’s true that there has been a shift towards the low-price segment. But we are not going to change our strategy saying the market is going down. We are quite confident that if the service industry index improves, there will be revival in the demand, even in the urban cities,” Guleria said.

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