Bajaj Auto, TVS Motor reduce prices to combat subdued sales

In an effort to combat subdued sales, Bajaj Auto and TVS Motor Co are taking measures like trimming prices by anywhere between Rs 500 and Rs 2,000 on some products. For their part, some dealers are also sacrificing a part of their margins. Prices of two-wheelers have risen over the past year on several counts, including higher insurance costs and because vehicles needed to fitted with anti-lock braking systems from April 1, 2019.

Bajaj Auto, for instance, has been selling the Pulsar 150 Neon fitted with an anti-lock braking system (ABS) at non-ABS prices in some states like Maharashtra, Uttarakhand and parts of Uttar Pradesh. The vehicle is sold at around Rs 67,000 (ex-showroom). In other states, while a Rs 6,000 hike was taken on other products in April, the increase in the price of the Pulsar 150 Neon was just Rs 2,000, dealers told FE.

While the Pune-based automaker had cut prices of CT 100 by Rs 1,800 in June-July, the company upgraded the CT 110 model without taking any price hike in the kick-start variant. The upgraded model in this segment is typically costlier by Rs 1,000-2,000 compared with the earlier version.

Manufacturers increased prices in the range of Rs 500-7,000 as they rolled out products with combined braking system (CBS) and anti-lock braking system (ABS) features, mandatory for vehicles sold from April 1.

TVS Motor has cut the price of its moped by Rs 2,000 and dealers are offering discounts in the range of Rs 1,000-2,500 on the ABS/CBS models of products like the Apache RTR 160, the Jupiter and the Star City in many states.

While Bajaj Auto said its spokesperson was not available to comment, TVS Motor did not reply to FE’s queries till the time of going to press. In the post Q1 results conference call on Monday, TVS Motor CFO K Gopala Desikan said the higher interest rates on loans was hurting sales. Desikan expects industry volumes to decline in the second half of FY20 as well. “It’s not that liquidity is a major issue now, the problem is that interest costs have gone up significantly,” Desikan told analysts.

The price cuts by manufacturers underscore the sharp contraction in demand over the past eight to nine months due to increase in insurance premium and also because credit from NBFCs is not as plentiful as before. Besides, the companies are also looking at liquidating stocks before the festive season so that wholesales are not impacted.

Analysts said retail demand is still weak and inventory levels are way higher than normal. “While production cuts has led to some inventory correction from peaks, channel inventory still remains high, particularly in two-wheelers. Retail demand remains muted almost pan-India,” analysts at Jefferies said.

According to analysts at Nomura, demand is unlikely to recover in the near-term. “We remain concerned over two-wheeler industry growth given slow GDP growth, weak monsoon and rising costs for BS-VI,” analysts at Nomura wrote.

Analysts at Kotak Institutional Equities had written in March selective financing by NBFCs was also constraining volume growth. “FY2020 could also be a challenging year for the sector due to transition to BS-VI norms from April 1, 2020,” analysts at Kotak Institutional Equities noted.