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Last Updated : Nov 22, 2016 03:53 PM IST | Source: CNBC-TV18

See a decline of 25% YoY in November sales: Bajaj Auto

Eric Vas, President of Motorcycle Business at Bajaj Auto, said that post demonetisation there has been a significant decline in the sales of 2-wheelers. It was 50 percent in rural India and 25 percent in urban areas.

Eric Vas, President of Motorcycle Business at Bajaj Auto, said that post demonetisation there has been a significant decline in the sales of 2-wheelers. It was 50 percent in rural India and 25 percent in urban areas.

More importantly, decline in enquiries was down 80 percent across the country, he said. However, in the last four days, we have seen a revival in enquiries, and they have gone up by 30 percent, he added.

Vas says it will be difficult to predict what will happen in the long-term, but the increase in enquires does indicate some liquidity is coming back into the market, he said. He stressed how most customers who buy two-wheelers do cash downpayments. He sees a decline of 25 percent this November in sales on a year-on-year basis. However, this currency ban won’t affect its launches, he said.

Below is the verbatim transcript of Eric Vas’ interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Latha: You all did a rural tour a week ago and you all came back with a conclusion saying that things are looking extremely disturbing in terms of demand contraction. Tell us both the results of your first trip and whether things have improved at all now?

A: Yes, we have seen ever since 9th of this month significant decline in sales of two-wheelers across India. The decline was approximately 50 percent or thereabouts in rural areas and approximately 25 percent in urban areas. But more important than the decline in sales was the decline in enquiries which were coming into counters. That decline was in the magnitude of approximately 80 percent across the country. So, customers stopped coming to buy two-wheelers and Bajaj was as affected as every other manufacturer selling two-wheelers.

In the last four working days, we have seen a revival in enquiries. Enquiries have increased by approximately 30 percent across the network. So, there is some positive news after this disturbance. However, we have not seen our retail sales increasing in the same proportion. I suppose, it will take another four or five days before we understand where we are headed.

Sonia: Can you give us a sense of what damage this could do to your own motorcycle run rate over the next couple of months, in November, December and January, what do you think the average run rate could slow down to?

A: When we entered November this year, we were expecting a growth rate in excess of 12 percent over last year. That is because we came in with news of a very good kharif crop and we understood that rural sales in particular would do very well this November and presumably even in December. However, our decline has been in the region of around blended rate in excess of around 30 percent -- decline in sales -- versus last year.

My sense is that we cannot predict what is going to happen in the long-term but clearly the increase in enquiries, which has happened over the last 3-4 days, does seem to indicate that some kind of liquidity is coming back into the market. Most of the customers that buy two-wheelers do so with cash down payment. There is a large amount of finance that happens. The non-banking financial companies (NBFCs) in particular have been very badly impacted.

I understand from motorcycle financiers in the NBFC space that their collections have been very weak and they expect their arrears to increase. That will put another damper on sales going into this season. So, I do expect that a decline of around 25 percent is foreseeable for this month. Next month I don't want to predict, it depends on how Reserve Bank of India (RBI) puts in more bank notes and people get currency in their hands to complete purchases.

Sonia: So, you mean a decline of 25 percent in the November is what you are forecasting?

A: That is right.

Anuj: Two part question. 25 percent decline month-on-month (M-o-M) or year-on-year (Y-o-Y) and also does this impact your plans of new launches if the market becomes a bit weak or do you go ahead with those new launches?

A: It is 25 percent Y-o-Y to clarify and no, it will not impact our launches. There are many other parameters in a launch. They are vendors who made parts, their production lines, which have got ready. So launches will go ahead.

I would like to touch upon one issue on electronic transactions. Most dealers do accept debit card payments and they have these debit card machines and credit card machines at their dealerships. But we must understand the cost of these transactions is fairly significant. Just to give you numbers, a Rupay transaction cost is approximately one percent on a debit card and it is similar for Visa and Master Card. In comparison when dealers deposit cash in bank the cost of transaction is approximately 0.1 percent. So, you are seeing a ten-fold increase in cost for dealership in transactions. That is very significant and that is something that needs to get sorted out if you are going to move towards a more cashless economy.

Sonia: I wanted to ask you if you could give us any details on what are the brands of Bajaj that have actually gotten impacted because in terms of sales. Some of your new launches like CT100 and Platina were doing very well. But have you seen a slow down there but is there a slowdown in some of the traditional brands like the Pulsar or Discover etc?

A: To clarify the slowdown has been across the board but the brands which predominantly sell in rural market has been impacted much more than brands that predominantly sell in urban market. So, we have of course had a greater impact in our 100 CC brands namely the CT100 and Platina and a lesser impact on the Avengers and Pulsars at this point in time.

Latha: I wanted to hark back to the answer you gave us about how credit card payments are more expensive than cash at the dealer level. It is a disincentive to buy by card from your point of view?

A: Yes, it is. Just to clarify, I was speaking of debit cards. Credit card transactions typically cost 1.5 percent on Visa or Master Card. Debit card is 1 percent. In contrast to that, if a dealer takes cash and deposits it in his bank account, the bank typically charges 0.1 percent fee for the service. So, yes, it is a 10 times more expensive issue for the dealer or the merchant. That is significant. Merchants can't absorb that kind of cost increase. Our two-wheeler industry in India runs on very thin margins on the sales side and it is going to be difficult for them to absorb that kind of fee.

Latha: Is this the service tax element or is it the transaction charged by Amex, Visa, Master Card, which part is this cost?

A: This is what is called the merchant fee, which is charged by the bank and in-turn is levied by either Rupay or Master Card or Visa. Rupay is a little cheaper I understand if your transaction value is less than Rs 2,000. It is around 0.7 percent. But sales transactions are always more than Rs 2,000 in two-wheeler space.

Sonia: I just wanted to ask you on what the two-wheeler manufacturers like Bajaj are planning to do here on to increase the sales, once demand starts coming back. Any incentives, any increase in discounts or promotions that we can expect from the sector?

A: We are, in a sense, fortunate that this happened just after the festive season because our stocks were at a very reasonable level at the dealerships. The stress would have been much higher if it had happened earlier before the festival season happened or even in a normal month where the stocks tend to be at a higher level than they were coming out of festive season. So, we are luckily in a position where we are refilling stocks. So, the stress on the network is much lower than it would have been otherwise.

As far as offers for customers go at this point in time the issue is not giving an offer to the customers. There are customers who want bikes. They simply don't have the means of transacting. So, we are trying to work with our finance partners, we are trying to work with various agencies to try to ease off the transaction stress that they are undergoing. A couple of financiers have offered schemes, which give practically zero down payment, which reduces the need for having cash to pay or instrument to buy when you buy the bike. However, of course, that will be very limited in the kind of number of customers it can address because financiers, as I did explain, are also under stress on collection.

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First Published on Nov 22, 2016 10:02 am
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