More summer for auto majors!

Monsoon may have hit our shores as expected but for the two wheeler makers it is going to be more summer. The motorcycle market’s vrooming growth has hit a roadblock, forcing top players to rationalise production and reduce dealer inventory. This is clearly evident from the market index, both BSE and NSE have rebounded and scales new highs but auto stocks continues to be in the lower end.

• Market leader Hero Honda has reported a 6% drop in dealer despatches in May compared to the same month last year and expects June sales to be 40,000 units below May sales.
• Arch-rival Bajaj Auto, which has been clocking negative growth in bike sales since February, saw almost 15% fall in primary sales in May.
• Total two-wheeler sales for TVS in May fell 13 percent from a year earlier to 108,151 units, with motorcycle sales falling 37 percent from a year earlier to 49,651 units.
  

The reason for the downfall is because of high interest rates and high inflation. Interest rates have increased by about 50% comparing last year. Indian two wheeler market is largely driven by financing i.e. almost 60-70% of two wheelers is through finance.

Motorcycle makers prepare has to cut down production because of lower sales figure. Here are their plans to beat the heat

* Bajaj’s production will be cut by 10% i.e from 200,000 bikes per month last year to 170,000 this year.

* TVS may trim the production by as much as 5,000 units a month and this production cut may be continued till September 2007.

* Hero Honda Motors Ltd. may cut production as it’s peers.

Four wheeler majors Tata and Mahindra are no exception. Both Mahindra and Tata posted drop in sales and expects the same in coming months too. For the past many months auto majors are facing margin pressure, this drop in sales might add insult to their injury. Also, rising global oil prices and heavy monsoon(similar to the last year one) is no good news for these auto manufacturers since it may bring the sales down even further. Really, auto majors are facing blistering heat and it’s RBI! which has to bring monsoon to them.