Industry

BS-VI pre-buying: Two-wheeler industry banks on retail financiers

Two-wheeler industry feels that availability of adequate financing will be a key requirement to meet the pre-buying demand that may come due to migration to BS-VI norms from April 1, 2020.

Though the two-wheeler industry is reported to be facing a bigger challenge than other segments in BS-VI migration due to cost inflation and another couple of factors, companies expect some pre-buying to come in during the January-March 2020 period as prices of two-wheelers will be higher in the range of 10-15 per cent from April 1.

But the industry has one big concern – availability of financing. If the funding environment doesn’t improve, the opportunity to cash in on the pre-buying demand will be lost. While the entire auto industry was reeling under a demand slowdown, two-wheeler segment’s growth prospects were affected by lack of financing and change in the pattern of monsoon this year.

This year monsoon’s timing was an issue – there was a late entry and delayed exit. So, it didn’t align with the sowing cycle. The farmers were left with a short period complete the activity of sowing.

Retail finance

So, it disturbed rural buying. Two-wheeler companies have a high dependence on NBFCs for retail finance, especially in rural areas. Change in the monsoon cycle and NBFC crisis resulted in rural slowdown besides the increased acquisition cost of two-wheelers.

However, the government initiatives coupled with improved liquidity acted as a good enabler during the festival season.

“Since the government initiatives materialised before the onset of the festival. We could see the realisation of those actions at the ground level. Financiers also came forward to offer attractive schemes – zero down payment, low EMI or interest rate, supported by the improved liquidity for them,” said YS Guleria, Senior Vice-President – Sales and Marketing, Honda Motorcycle & Scooters India.

As high as about 50 per cent, Honda could finance in retail sales during October and November. Which means every second customer of Honda was buying his/her two wheeler using finance.

But, post-November to now, there has been a constraint in the financing, while sentiments remained weak too. Now, the industry is entering a crucial phase of transition towards BS-VI norms with new products.

However, the price points available in the market are anywhere 9-15 per cent higher. For eg, BS VI variants of Hero’s bike Splendor i-Smart and TVS’ scooter Jupiter Classic are priced 13 per cent higher. Honda Activa 125 BS VI carries 9-10 per cent higher price.

Price-hike impact

How customers will respond to another price increase is a serious question.

“Bigger role is expected to be played by the retail financiers. With the increased cost of two-wheelers, there will be more percentage of buyers who will go for financing support. The two-wheeler financiers have disbursement targets – how much amount to be disbursed during the period. Earlier, the same amount could be used to finance 10 vehicles, with new prince points they will be able to finance only 7-8 vehicles. Unless they increase the total disbursement amount allocated, more vehicles may not get funding,” pointed out Guleria.

But Miren Lodha – Director, Crisil Research, said financing acts as a facilitator and not a catalyst in case of two wheeler financing. Only about a third of sales are financed (30-35 per cent) unlike passenger and commercial vehicles (above 75per cent), due to smaller ticket size and shorter tenure of the loan. Average loan-to-value ratio offered by financiers, has remained range bound between 65-70 per cent.

Two-wheeler industry is banking heavily on improved lending by NBFCs to fuel the pre-buying which could, they hope, be a precursor to a demand revival.

[“source=thehindubusinessline”]

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Loknath Das

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