India's leading two-wheeler makers are working out strategies to overcome slack demand caused by shortage in retail finance.
Bajaj Auto and TVS Motor are looking at their own group finance companies to make the finance available, a role being played by leading retail banks such as ICICI Bank and HDFC Bank.
Sales in the first three quarters stood at 7.5 million units and fell by nearly by 8 per cent, with the top-three two-wheeler companies reporting drop in sales during the period.
Market leader Hero Honda, despite a large sales base, reported less than a 0.5 per cent drop during the period, while Bajaj Auto and TVS Motor reported 18 per cent and 19 per cent declines, respectively, according to Society of Indian Automobile Manufacturers.
Last year, ICICI Bank and HDFC Bank placed two-wheeler loans under the high-risk category due to rising payment defaults and have pulled back 20 per cent of their exposure to the segment.
According to banking sources, high defaults were triggered by rising interest rates in the two-wheeler segment and a poor collection mechanism in the rural market.
On the other hand, Hero Honda buyers, according to company and market sources, have a greater propensity to self-finance their purchases.
"We are doing better than the industry. In the motorcycle segment, we grew by 2 per cent between January and December last year, while the industry fell by 4 to 5 per cent," said Anil Dua Hero Honda's head of marketing and sales.
S Sridhar Bajaj Auto's marketing head of two wheeler business said his company would tap the group finance company, Bajaj Auto Finance, to expand its network and presence in the two-wheeler finance market. He added that this group company, which had maintained a low-profile, would develop a new business model in six months.
TVS Motor is mulling a similar strategy. Speaking at a conference during the Auto Expo 2008 early last month, the company's Chairman and Managing Director Venu Srinivasan said group finance companies were in talks with some leading banks that can provide the capital to TVS Group finance companies, which, in turn, could become a lender in the market.
Dua said his company's strategy would be to bring greater focus on brand-building to maintain the momentum. He, however, refused to give details.
All the three companies in the last one year have set up fresh capacity at new locations and all of them have opted for locations outside the present states.
While Hero Honda and Bajaj Auto chose Uttarakand for their new plants, TVS Motors located its third plant in Himachal Pradesh. The cumulative capacity of the three companies stands at 9.5 million, with nearly 2 million of which remains unused.
K N Radhakrishnan, President of TVS Motor, said the current difficult phase is temporary that would not last beyond a year.
Radhakrishnan said, "Look at the drivers for this business. GDP is growing at 9 per cent, investment in infrastructure is good, need for mobility is high and penetration of two wheelers is low." Nearly 56 per cent of two wheeler owners in India have an annual income of less than Rs 100,000, he noted.