No Easy Fix for India’s Sputtering Motorcycle Market
March 27, 2008

By Nick Kurczewski

The Tata Nano is creating an entirely new segment of ultra-cheap city car, thanks to its rock-bottom, $2,500 price. But the Indian-built hatchback could soon face serious competition from the very type of transport it was supposed to make obsolete.

The Economic Times reports the Indian Finance Ministry is considering a cut to the excise duty placed on motorcycles, presently set at 16 percent. This could give a noticeable boost to India’s struggling two-wheeler market.

Tata Motors, which this week announced it had purchased luxury marques Jaguar and Land Rover from Ford for $2.3 billion, makes no secret of its desire to put four-wheeled motoring within the budgetary means of Indian consumers who would have otherwise considered only a motorcycle or scooter. Yet even before the Nano’s arrival this October, motorcycle sales in India have been plummeting.   

The Society of Indian Automobile Manufacturers reported motorcycles sales between April 2007 and January 2008 dropped more than 12 percent. Segment sales leaders such as Hero Honda and Bajaj Auto are understandably nervous the Nano could make a bad situation even worse as Indian buyers move from two wheels to four. 

During the Nano’s debut in early January at the New Delhi Auto Expo, Ratan Tata, chairman of Tata Group and Tata Motors, routinely mentioned how the sight of Indian families perched on overburdened motorcycles was inspiration for creating a safer four-wheeled alternative priced only slightly more than many motorcycles.

According to the Economic Times, an excise-duty cut could see the price of motorcycles and scooters fall by as much 3,000 to 7,000 rupees, or roughly $75 to $180. That change seems small, but it could make a huge difference to buyers in India. The country’s economy is booming, but as recently as 2006 the World Bank listed India’s per capita income at only $817. 

A quick scan of Hero Honda’s Web site finds the company’s best-selling motorcycle, the Super Splendor, priced around $1,115. 

Another key factor in the decline of India’s motorcycle market is the influence of rising interest rates. A recent story in the Financial Times reports up to 80 percent of India’s motorcycle and scooter buyers rely on bank loans. The interest rates on these loans have gone from roughly 8 percent in 2006 up to 12.5 percent. These higher rates have also put a crimp on India’s automotive market — though not to the extent of the two-wheeler market’s woes.

Sales of automobiles in India fell 4.8 percent from April 2007 to January 2008, the Financial Times said. 

This leaves the Indian government in a precarious position. Cut the excise duty on bikes and give the two-wheeler segment a boost, or maintain the status quo and leave the door open for the Tata Nano to maintain its competitive price compared with motorcycles and scooters.•

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