Are the Indian twovhees ready to face lakhtakia bug!

By

Niraj Kumar Chaturvedi
Academic Associate
IIM Ahmedabad
 

Indian vehicle market has been a ground of some good hunting over the last two or three decades and it has benefited both the producer and consumer in varied terms. We have seen the rise of Maruti-Suzuki on one side and Hero-Honda on another. As a matter of fact, both the two-wheeler and four-wheeler segments have reached the record breaking heights over a last decade. This is a matter of pride for the nation as a whole and due to this very sect oral growth thousands of families is getting their bread and butter. 

But over the last few years some techniques have been adopted by both segments, especially the mobike segment, to attract more customers. The prominent step has been to cut down the prices or to bring lower priced articles. Among the bike companies TVS was the first to take initiative and subsequently Bajaj and Hero group followed it. Now, Indian bikes are in the range of 25000/- to 70000/-. Whereas, the car segment has been dominated by Maruti ranging from as below as 190000/- (approx.). Another thing to be looked at is that the bikes are mostly ranging between 90 cc to 180 cc, and the cars are starting from 800cc. Here it seems that both the sectors are entirely different from each other and there is no sense of competition. But the real threat is now coming to play with the announcement of introduction of mini-cars by TATA and some other groups. These cars will have the on-road price of approximately 100000/- and capacity of 400 cc or more.

At the first site it seems to be an entirely different segment. But the real picture is a threatening one. The effect of these cars will be directly over the second-hand market of cars. Presently, in India, the two to three year old cars are being sold at a price range of 80000/- to 130000/- (Maruti 800). This price structure is highly influenced by the depreciation policy of income tax dep't... Now if  a person is getting new product at the rate of old product, then its natural that he will buy the newer one or if not going for that then he will expect the rate of old product to go further down.

This will have two impacts, either the prices of used car will be decreased further and the car (used one) will be sold at the rate of a new bike; or people will not dispose off their cars. But due to strict pollution norms, especially in the big cities, they will be compelled to do so and this is the usual trend that vehicles of big cities are on roads of smaller places after few years. Meanwhile, this is not a big threat for the car market and it will be tackled by the industrialists with slight bit of adjustments in their price tag and putting pressure over the govt. to change depreciation policy.

The real threat is for the two-wheeler industry. They will find a new competitor to cope with as somebody will be offering more space, comfort and prestige at their rate. They can contradict this statement by giving argument that they are earning in metros due to the fact that their product is fuel-efficient and needs less parking area; and in the smaller towns, there is a big difference between price of 40000/- and 100000/-. But the counter arguments will be like- more parking areas are now going to be constructed in the towns, these mini-cars will have a fuel efficiency of around 40 km/l, and  the financial service organizations are providing  such easy term loans that one lakh comes at the price of forty thousand in present. Moreover, Indian customers are moved by emotions and feelings, and the prestige of having a car rather than a bike is better placed. So, it's the time of blip!
 

Niraj Kumar Chaturvedi
Academic Associate
IIM Ahmedabad
 

Source: E-mail March 12, 2006

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