Unsold stock piles up at two-wheeler sales channels amid weak demand

As a result, unsold inventory at the sales channels across Hero MotoCorp, Honda Motorcycle and Scooter India, TVS Motor and Bajaj Auto have risen from the average 40-45 up to 75 days.

The approaching festival season is unlikely to bring any cheer to two-wheeler manufacturers, grappling with weak demand and rising costs for two years on the trot. Worst affected by the pandemic, this segment has not been able to ride out the Covid-19 blues, and recovery has been patchy at best.

Shuttered educational institutions and restricted movement have dented the world's largest market for such vehicles. As a result, unsold inventory at the sales channels across Hero MotoCorp, Honda Motorcycle and Scooter India (HMSI), TVS Motor, and Bajaj Auto have risen from an average 40-45 days to up to 75 days.

A high level of unsold stock ahead of Navratri, Dussehra, and Diwali means manufacturers will have little or no headroom to despatch more in the run-up to the peak season.

Typically, a majority of manufacturers start stocking up one or two weeks before the season. The stockpile in July and August reflects the underlying stress, said analysts. Navratri falls on October 7 this year.

Two-wheeler sales in the first four months of the current financial year rose to 3.6 million units, from 2.5 million. This comes on a low base year. The 10-year compound annual growth rate of two-wheelers dropped to 6.4 per cent in 2019-20 (FY20), from 9.8 per cent in 2009-10.

The average stock levels at market leader Hero MotoCorp, for instance, have risen to 75 days, against the customary 40-45 days. For some, it's even higher, said dealers. "The stockpile is hitting us where it hurts. I worry as we approach the festival season," rued a dealer.

The 30-32-day period, starting Navratri to Diwali, accounts for more than a third of annual sales of two-wheeler firms. This year, however, they will have to make do with less.

But Hero MotoCorp is unruffled. "At Hero MotoCorp, we are gearing up for a very good season. We don’t see any cause for concern apropos market demand. The industry usually sees slow retail offtake in the months prior to the festival period," said a spokesperson for the company, attributing the slow offtake to the tendency among buyers to "defer purchases till auspicious festival days".

It is, therefore, normal for the industry to build up inventory during this time to be able to meet the sudden spurt in demand during the 32-day festival period when sales are almost 3x a non-festival month, he added.

A decent monsoon, encouraging farm activity, and several government schemes in the social sector are good signs, he said. "We expect the numbers to be positive as we move forward," he added.

A steep price hike, led by regulations, has also impacted sales. On average, the price of motorcycles and scooters has been raised by almost 25 per cent in two years. Subsequent price hikes by manufacturers - owing to high commodity prices - have also pinched sales, said a dealer of HMSI.

"I have a four-month inventory. Sales of scooters have hit the skids," he said, adding that the company has been very supportive through the first and second wave of the pandemic and there is no stock push. The HMSI executive wasn't available for comment till the time of going to press.

Bajaj and TVS, too, are struggling. Inventory at the sales channels of the two firms have shot up to 60 days, from the standard 40-45 days, revealed dealer sources. "Though demand has been slow, our inventory is at a reasonable level," said an executive at TVS. An executive at Bajaj Auto declined to comment.

The demand uptick seen during the festival season last financial year has failed to sustain, according to a CRISIL survey of automobile dealers. Most dealers said sales are not yet at the FY20 levels. The deal conversion cycle has doubled with consumers' deferral behaviour, said CRISIL in a statement on Monday.

Two-wheeler dealers had hoped for a quick demand turnaround. However, those expectations were belied as rural demand declined with the rapid spread of Covid to the hinterland during the second wave, it said. According to the survey, dealers in the North have been the most impacted across segments.