Motorcycle industry booming

The sales of two and three-wheelers have been consistently increasing; recent sales data shows that motorcycle sales, unlike car sales are well above the pre-crisis level reaching beyond 850,000 units in FY11. So it appears that motorcycle assemblers did not fare as badly as did their counter parts in the production of four-wheelers. Major demand for two-wheelers comes from rural areas, so it may be asserted that agri-incomes have had a positive bearing on the demand for motorcycles. The correlation of motorcycle sales with agriculture incomes can be seen by plotting wheat prices against the annual sales of motorcycles. The wheat support prices which stood at Rs425 per 40-kg in FY07, was bumped up by a whopping 47 percent in FY08 to Rs625 per 40-kg. During this period, motorbike sales surged by 41 percent from 467,353units to 662,573units. In FY09, wheat support price was raised once again; this time by a hefty 52 percent, but the sales decreased. Given the dismal state of the economy at that point, it may be argued that the higher support price prevented a more serious decline of 40-50 percent in sales of two-wheelers. That is why, in FY09 when the whole auto sector experienced roughly 50 percent drop in sales (due to the affects of the financial crisis), the motorcycle assemblers saw a relatively modest, 23 percent drop in sales. Further, the decrease in sales in FY09 is partly attributable to the increase in prices of motorcycle due devaluation of currency and higher interest rates which took motorcycles out of buyers reach. According to an estimate, Rs1 trillion has moved from urban economies to rural areas over the last three years .The affect of raising support prices from Rs625 to Rs950 coupled with transfer of income from urban to rural areas can be seen in the rising trend of sales which has spanned FY10 and FY11. Sales jumped from 507,924 units in FY09 to 737,768 units in FY10, and 835,455 units in FY11. The motorbike assemblers will likely stay busy as competition intensifies in the future. Yamaha is reported to be lobbying for concessions to enter the local market once again. If the government eases the new investor policy in this industry as it relaxed the new entrant policy for car manufacturers; the race would heat up further. But it appears that if the government raises the wheat support price again, in-line with demands from agriculturist circles; motorbike demand could also get a helpful boost.