When the two wheeler companies like Hero Moto and Bajaj announced their quarterly results, the real focus was never on the revenues or the profits. The focus was on whether we could see a hard price war in the two wheeler segment. Like it or not, the two wheeler segment may have to brace itself for a nasty price war. Here is why.
Input costs are rising…
That surely sounds paradoxical. Why should two wheeler companies opt for price wars when input costs are rising? The answer lies in the fact that the companies really cannot afford to pass on the cost to the buyers in such a highly competitive market. There used to be 2 major players in the past and today there are 4 major players. Obviously, the bet is that as China slows down its metal purchases, the input costs should gradually come down. That is the big bet for auto companies.
Price has been the last lever…
We have seen numerous sectors going through price wars in the last few years. We saw price wars in FMCG products and then in the telecom space. Two wheelers may now use price wars as their last refuge to force a clear consolidation in the sector. With the market already divided among the four large players, the only way out may be to use their war chest to kindle a price war and force a consolidation!
Bajaj needs market share…
If you look at the quarterly results of Bajaj Auto and the commentary, one thing is very clear that the company is desperate for market share. In fact, the company has indicated its intent to push its market share up from the current 16.5% to above 20% in the domestic market. The reasons are not far to seek. For over 30 years, Bajaj literally had total domination of the two-wheeler space. Then in the nineties they ceded leadership to Hero Honda. Today, Bajaj ranks number 4 in the domestic market share in two-wheelers with Hero Moto, Honda Motors and TVS Motors taking the top 3 slots. Though Bajaj has a fairly large and profitable global business, the relegation to fourth position must surely rankle Bajaj Auto. They have nothing to lose and they are the most likely to trigger a price war in two wheelers.
Don’t miss the opportunity…
Two wheelers may face pressure from small cars, but they are standing on the threshold of a massive opportunity. Rising rural and urban incomes and shifts in semi-urban demand will be a big boost to two-wheeler demand. The time may be ripe for the likes of Bajaj to play their trump card and launch a price war. As we have seen in the case of Jio, price point does matter for a sensitive market like India. It may help Bajaj to regain its long lost market share and put its cash stash to real good use! ©
