Car News

Two-wheeler inventories with dealers are rising as a strong base
effect (higher sales during last year) and slowing rural demand are
keeping the sales volumes subdued.
Dealers, however, are not worried as they see the drop in sales as a
seasonal slack in demand.

The inventory levels, which rose in March on account of the festival
season not taking off as per expectations, have gone above 45 days in
some cases, when they ideally should be between 21 and 30 days. The
demand itself has been weakening since October.

The two-wheeler industry grew 14.77% during April-February 2012,
according to Society of India Automobile Manufacturers Association as
against 26% in the same period last year. However, according to an
industry source, "the growth has been just 6% at the retail level".
This means that dealers are stocking inventories in anticipation of a
demand pick-up.

According to a Mumbai-based Bajaj Auto dealer, "Most of the
manufacturers, over the year, have increased their production to meet
the growing demand. Dealers started stocking products due to this,
which eventually led to inventory pile-up."

A Mumbai-based Hero MotoCorp dealer said rising petrol prices are also
one of the key reasons for customers postponing purchases.

"Customers are finding it difficult to take the burden of rising EMIs
and increased petrol prices. Hence, the slow demand."

Two-wheeler manufacturers, however, do not see any inventory pile-up.
"Our inventory levels do not go beyond 30 days. We only bill what we
can retail. The fourth quarter has not been very good for the
industry. Considering the current situation, the industry will not
grow beyond 5% during fourth quarter, "said K Srinivas, president, two-
wheeler unit, Bajaj Auto.

HMSI (HONDA Motorbike) first plant, with a capacity of 1.33 lakh
units/month, is located in Manesar in Haryana and the second plant —
with a capacity of 1 lakh units/month — is located in Tapukara in
Rajasthan. Within a 5 month HMSI is going to start its third plant
India at Narsapuram outside Bangalore in Karnataka has a capacity to
produce 1.5 lakh units/month. The investment for the third plant is
around Rs 1,200 crore in the Government-allocated 96-acre site. And
fourth plant will set up within a year which will have production
capacity of 4.5 lakh units/ month in Karnataka at an investment of Rs
800 crore. This will see the total capacity of the company go up to
nearly 60 lakh units.

They are coming up with 3-4 new variants and have appointed 1000 sales
distributer across India targeting rural market which will directly
affect Bajaj Auto & TVS sales.

Kartik Jhaveri, a Mumbai-based HMSI dealer, said, "Overall, growth has
been affected but our products like Unicorn, Shine and Activa are
still doing well. The company has increased the production and hence
the waiting periods have gone down. The market is generally slow after
Gudi Padwa. We see demand picking up from June."

Hero MotoCorp has initiated its distribution network in all the 11
countries where Bajaj is exporting by April 2012.Coming quarter will
be very tough competition for Bajaj Auto & TVS.

Jamshed Dadabhoy and Arvind Sharma, analysts with Citi, wrote in a
note on Tuesday that there is a build-up of inventory levels.

"Estimates range from 3-4 weeks to around 6-8 weeks (at an industry
level). The reasons alluded to are a combination of pre-buying before
the Budget, slackening consumer confidence in the wake of falling
realisations for crop prices and base effects," they said.
About 55-60% of two-wheeler sales are in rural areas. "Slackening of
rural economy has directly impacted the demand for two-wheelers and
tractors. Crop prices have gone down affecting spending power of
farmers," said Srinivas of Bajaj Auto

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