Low Cost Cars and High End Bikes, natural transition in automobile industry

Motorcycles, India’s main mode of transport owing to its lower maintenance cost and fuel efficiency, have an annual sales of 78 lakh units of which 60 lakhs is just for the 100cc bike. The industry is poised to grow to 10 million units by 2012.

To tap this growing market, Honda Motorcycle & Scooter India (a subsidiary of Honda Motors and 11% market share) and Hero Honda Motors (in which Honda Motors has a 26% stake) are planning to launch 100cc entry-level motorcycles, a segment till now dominated by Bajaj Auto and Hero Honda.

HMSI’s model could be positioned higher than the existing ones in the market, sporting a premium price tag. It will also launch a new scooter and a 125cc motorbike next year. HMSI is also looking at importing popular high-end bikes like CBR 1000 and Gold Wing in the 500cc and above range which cost over Rs.10 lakh due to a high 60% import duty it attracts.

Hero Honda also plans to build a 500cc passenger car in partnership with Canada’s Bombardier Recreational Products to take on the yet-to-be-launched Tata’s dream project of a 1-lakh car. But sensing the high risk, the Munjals are adopting a wait-and-watch policy and would like to learn from Tata and how their car is lapped up in the market.

Meanwhile, India is becoming a global hub for low-cost auto manufacturing as is evident from the decision of French car maker Renault to create a $3,000 car in India.

But the concern remains about the high lending rates which are leading to slowdown in motorcycle sales this year and most of the auto majors are cutting their production. Also, it is not sure how the high-end bikes would be greeted in the market since Indian consumer who can afford such a bike is more likely to travel in a car. As for low-cost cars, it would depend ultimately on the value it offers.