Honda Forecasts Sharp Drop In Demand For Scooters; Cuts Production By 15-20 Percent

Honda Motorcycle and Scooter India (HMSI) has made the decision to cut down production of its two-wheelers. According to media reports, the decision has been taken as the company is expecting a sharp drop in the demand for its vehicles, more specifically, scooters.

Demand for its two-wheelers started declining at the onset of 2019, and it is expected to fall even more in this quarter. The report put out by Livemint confirmed the news through a few vendors of HMSI.

One of these vendors said that this is the first time HMSI has cut production in the first fiscal quarter since it began it operations in India in 2001. According to the same vendor, HMSI sends out a vehicle production manual to its vendors every quarter.

The manual lists out the production forecasts for the next quarter so that the parts supplier can manufacture the required parts and keep the inventory ready. Well, the production manual for the first quarter of the financial year 2019-2020 has asked suppliers to scale down production as HMSI itself is scaling down production by 15-20 percent.

HMSI is one of the largest two-wheeler manufacturers in India both in terms of sales and in terms of the number and variety of vehicles being manufactured. HMSI has in its portfolio everything from bare-basic commuter motorcycles to flagship superbikes.

However, a majority of the company's sales comes from scooters. There is no hiding behind the fact that the Honda Activa is the king of the hill when it comes to sales. It has been the best-selling scooter in India for several years now, and other scooters like the Honda Dio, Activa 125, Aviator and Grazia are also doing pretty well in the market.

In-fact, scooters made up 66 percent of HMSI's total domestic production in the financial year 2018-19. That means, the Indian subsidiary of the Japanese company sold more than 38 lakh scooters in 2018-19.

This sales figure was achieved despite having a slowdown in sales when compared to the financial year 2017-18. It is no doubt therefore that the scooter market in India is slowing down. HMSI relies heavily on its scooters to keep sales going, and since the scooter market is slowing down, HMSI is having to cut down on production by 15-20 percent.

The decline in the scooter market can be owed to a number of factors which include increasing costs of ownership and rising fuel prices. The slowdown started in September 2018 when insurance premiums went up significantly and this in turn affected the pricing of the scooters.

Thoughts On Honda Motorcycle And Scooter India Cuts Down Production By 15-20 Percent

The troubles for the scooter market in India are far from over. The current quarter (April-June 2019) is expected to be a bumpy ride as two-wheeler prices are expected to increase significantly.

This is due to the mandatory installation of CBS (Combined Braking System) on two wheelers with engine capacity of up to 125cc and ABS on all two-wheelers with engine capacity above the 125cc mark. This will inevitably increase prices and therefore makes sales slower.

Source: LiveMint