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October 15, 2017

Twin blow for two-wheeler sales this festive season

Cost of ownership up 25% after hike in insurance cost

Navratri began yesterday, heralding the festival season, but two-wheeler manufacturers are far from celebrating.

 

The festival season, intervening Navratri and Diwali, is considered highly auspicious for purchases in India and accounts for a chunk of sales for automobile manufacturers. Indeed, in the last ten years, around 30% of two-wheeler sales (~20 million sold annually) has come in the festive months.

 

But this year is expected to be different following two major pronouncements – first, the Supreme Court’s decision to increase the period of third party cover from one year to five years effective September 1, and second, the decision of the Insurance Regulatory and Development Authority (IRDA) to increase the personal accident cover from Rs 1 lakh to Rs 15 lakh effective October 3.

 

These two developments have pushed up the insurance cost, and thereby the cost of ownership, for buyers. Predictably, the industry is worried sales would be impacted.

 

How this impacts sales of two-wheelers

 

In order to understand the impact of these announcements, we have taken an example of Hero Deluxe, which accounts for ~55% of sales in the economy segment. The economy segment has entry level motorcycles given its affordability (Rs 40,000-45,000) and low maintenance requirement.