According to analysts, the penchant of top three two-wheeler makers to launch new models and their variants at an unprecedented pace may actually put pressure on their respective bottomlines.
NEW DELHI: Too much of a good thing can also be bad, and the two-wheeler industry may just learn the truth of this adage the hard way. According to analysts, the penchant of top three two-wheeler makers - Hero Honda, Bajaj Auto and TVS Motors - to launch new models and their variants at an unprecedented pace may actually put pressure on their respective bottomlines. And this may pull down the profitability of the entire two-wheeler industry.
Sample this: As many as 60 new bike models are lined up for launch in 2007 by new and existing players alike as they seek to consolidate their positions in the domestic market. Companies such as Hero Honda, Bajaj Auto and Suzuki Motorcycles have firmed up plans to roll out between 8-12 new bikes each, while Kinetic, TVS, Honda Motorcycle & Scooter India, and Yamaha plan to launch between 3-5 new products each in the next calendar year.
In fact, according to estimates by Bajaj Auto, 35% of the overall two-wheeler demand now is replacement demand and it is the multiple launches of productsvariants that will spur replacement in the near future.
But with frequent replacement comes higher promotional spends, enlarged research and development budget and high royalty costs (for market leader Hero Honda, by virtue of its JV with Honda) and analysts are now questioning the wisdom of such frequent introduction of new products.
Cautions one analyst, “Frequent new product launches will enable players to capture market share quickly, but they will also cede these gains with equal speed as competition’s fresh products hit the showroom. A situation will arise wherein younger brandsvariants will hit their saturation points quickly… All players will thus be caught in a cycle wherein they will find it difficult to consistently gain and retain market share.” And this will be especially true at lower price points - the economy segment - where there is already limited brand loyalty. Does this mean that Bajaj Auto’s well thought-out strategy of moving away from the economy segment of motorcycles altogether is to prevent bottomline shrinkage some years down the line? Could be.
Bajaj has already begun its upward march, launching upgrades of Pulsar 180 DTS-I and 150 DTS-1. Analysts have, in fact, said that arch rival Hero Honda’s continued focus on the economy segment “does not augur well in the long term. We are positive about the direction that Bajaj and TVS are taking in their product development initiatives - both players are focusing on the executive segment to improve long-term profitability”.
So, it seems the key to long-term profitability in the two-wheeler industry is cornering dominant market share and maintaining it for high-end products instead of fighting out a no-gain war in the economy segment.
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