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Bike makers rework strategy for the difficult road ahead

Bike makers rework strategy for the difficult road ahead

Author | Source: Business Standard | Monday, Aug 27,2007 9:43 AM

Bike makers rework strategy for the difficult road ahead

Declining sales and sliding margins are compelling two-wheeler makers such as Bajaj Auto, Hero Honda and TVS Motors to rejig strategy, to cope with the slowdown.

Bajaj Auto, the country’s second largest two-wheeler manufacturer, hopes to make magic by offering customers a value-added machine with more power (125 cc) but the same mileage of a 100 cc bike, but at a price much lower than that would be charged for a bigger bike.

Bajaj expects that its new 125 cc Exceed, to be launched next month, will revive sales and turn things positive in the next six months. “the future of the company depends on this bike,” Bajaj Auto Managing Director, Rajiv Bajaj, said in an interview recently.

Bajaj has announced a passenger car project with French car maker Renault that may hedge its dependence on two-wheelers. But that will take some time as the project is expected only by 2011.

Bajaj has said that it would make the engine for the car, which will be manufactured by Renault. This is probably the first time that a foreign auto company will have a technology tie-up with an Indian company and not vice-versa.

Till then, Exceed will have to work the magic. The company hopes to sell over 50,000 bikes monthly, which is more than 40 per cent of its total current sales. And, of course, the new bike offers better margins.

“Since the production cost of the bike will be the same as our 100cc bike Platina, we hope to attain far better margins, as the price of Exceed will be Rs 6,000-7,000 more than Platina, thereby allowing us a profit margin of around Rs 4,000 on every bike sold,” Rajiv Bajaj said.

The 125 cc bike aims to attract customers from the economy bike (100 cc) segment with an upgraded product at a marginally higher price.

“We have found that people would not mind paying that extra Rs 7,000 for a bigger capacity bike which would deliver a mileage of a 100 cc,” said S Sridhar, Bajaj Auto CEO (two-wheelers). At about Rs 40,000 to Rs 42,000 it will be about Rs 4,000 to Rs 5,000 cheaper than the 125 cc Discover model.

Bajaj will also lower its focus in the low margin 100 cc segment.

“We are now focusing on the middle (125 cc) and upper (+125 cc) one third of the pyramid as we are making very little or no money in the huge segment of 100 cc which has also witnessed a fall in sales year-on-year,’’ said Rajiv Bajaj.

“Real margins are actually coming from the Pulsar segment. We have just 24 per cent market share in the 100 cc segment,” he added.

Hero Honda, however, will not walk out of the 100 cc segment which constitutes the bulk of its sales. The company says an aggressive plan is underway to push the product in rural India and woo the bicycle owner to go in for an economy bike.

While officials refuse to divulge details about new bike launches, market sources suggest that the company is upgrading its new models (and charge only about Rs 1,000 to Rs 1,500 more) and will get aggressive in the +150 cc bike segment while also launching an economy bike (perhaps a 100 cc).

The company maintains that it has done better in maintaining its inventory and production.

A key decision was to delay the launch of its new plant in Haridwar. The plant was supposed to go on stream producing over 1.5 million bikes, but now the launch has been postponed by a year. That means it will not be forced to dump products in the market.

Like Bajaj Auto, it is also hoping that the festive season will give it a reason to smile and it is also working out special finance packages to woo buyers.

“Our recent launches, including Splendour NXG, refreshed Pleasure, Passion Plus and Super Splendour have been received well in the markets,” said Anil Dua, vice president (marketing and sales), Hero Honda Motors.

“Our approach is to strengthen our brands, to bring in new products, support them with extensive communication and leverage the Hero Honda brand.”

Down south in Chennai, TVS Motors aims to create new excitement with nine new launches in various segments by March 2008, through which it hopes to regain volumes.

The company is also planning to foray the three-wheeler market to reduce its dependence on two-wheelers.

New models include a high volume entry level motorcycle (100 cc) along with an executive segment bike (+125 cc category), a scooterette, an electric scooter, besides two- and four-stroke three wheelers.

The company hopes to generate about Rs 70 crore from projected sales of 10,000 units in the first year of the three-wheeler operation. To ensure that it can make big bikes above 150 cc, TVS has also set up a 140-strong research and development team which is working on high-end bikes.

This high-margins segment has been growing faster than the total market. It is also pushing exports to tide over the decline in domestic sales.

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