Teji Mandi Explains: Two-wheeler industry's recovery process likely to be challenging post-second COVID-19 wave

Recovery in the two-wheelers (2W) industry is stalled again under the impact of the second COVID-19 wave. The mini festive season in April was disappointing for the industry. Even the wedding season was below par. With consumers failing to show up, the industry is staring at a wall of worry that it needs to climb.

Dull Festive Season, A Cause of Worry

The month of April was expected to be a peak season for the industry due to festivals like Navratri, Gudi Padwa, and Ramadan. Sales were expected to get a boost from the wedding season in northern and central India. And, rural demand was also expected to remain high after the rabi harvest.

Expecting the recovery momentum to continue, dealers commenced April 2021 with high inventory levels. At the start of the month, inventory at Hero (45–60 days), Bajaj (35–50 days), and TVS (30–40 days) were at a manageable level. It was also backed by a supporting number of inquiries and bookings. However, dealers saw a significant increase in cancellations with the rise in COVID-19 cases.

However, a Motilal Oswal report suggests that demand for 2Ws is down by 30–50% in April, with no signs of recovery. As Rajiv Bajaj, MD, Bajaj Auto indicated, there is a lot of chaos at the dealership level all over the country at the moment. And, 2W industry has reduced its domestic sales forecast by about 15% for the ongoing quarter.

Dealers in northern and central India performed better on account of some wedding season demand. However, the festive season delivered significantly lower than expected numbers. Dealers in Maharashtra posted just 50% of expected sales on Gudi Padwa.

Impact Spreading to Smaller Centers

During the first COVID-19 wave, tier- I & II cities and rural centres played a crucial role to sustain the demand. However, that is unlikely to be the case after the second wave as smaller towns and rural areas are also equally impacted.

Since there was enough cash on hand after the first COVID-19 wave, the market quickly recovered. Strong pent-up demand also helped to revive the sentiments. However, recovery post-second COVID-19 wave is expected to be much more challenging. A large population is spending money on medical bills. It has left little room for discretionary spending. Hence, with depleted resources, the wave of pent-up demand is not expected to be as strong.

Price Hikes Adding to Woes

Auto manufacturers have increasingly taken price hikes since BS-VI was introduced in April last year. Higher commodity prices have resulted in price hikes and reduced the number of new launches.

Two-wheeler manufacturers have taken a price hike of 5–8% in the last year. Along with that, a cautious approach from 2W financiers has discouraged fresh purchases.

Closing Comments

The ongoing month of April is disappointing for the industry. Usually, April is considered a peak season for the sector due to the festivals that fall in the month. With monsoon round the corner, the industry will enter into its traditionally lean period. It will push the hopes of revival until October-November 2021, with demand expected to revive around Diwali.

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Free Press Journal