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Scooters: Will they make a comeback? - Views on News from Equitymaster
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  • Nov 9, 1999

    Scooters: Will they make a comeback?

      This must be the question uppermost in the mind of Mr Rahul Bajaj, Chairman and Managing Director of Bajaj Auto. Considering the two-wheeler scenario over the past two years, the possibility may seem distant to some, but no one's willing to write off scooters as yet.

      Not so long ago, scooters were to the Indian two-wheeler segment what Sachin Tendulkar is to Indian cricket today. Dominant with over 60% market share (in financial year 1994), the scooter was the most obvious choice when it came to selecting the first vehicle for the family. And why not? Scooters were sturdy, economical and fuel-efficient. Moreover they were cheaper to maintain than the more expensive motorcycles. Mopeds were considered mere poor cousins of the scooter.

      Scooters - urban and staid
      First the facts. The scooter is essentially an urban vehicle, high on comfort and reliability, although the same can't be said about its aesthetics and elegance. Scooters have always borne a strong correlation to industrial growth and economic stability.

      Close to 70 percent of domestic scooter sales are accounted for by customers interested in a 'value for money' product, and are unwilling to dig deep into their pockets for features that do not significantly enhance vehicle performance. Scooter retail prices for an entry level model range between Rs 23,000 (US$ 530) to Rs 28,000, with the premium model priced above that range.

      Currently, there are seven companies operating in the scooter segment with Bajaj Auto (with its brands Chetak, Super, Cub) accounting for the lion's share. Bajaj's share would have been even larger, had it not been for LML (Vespa), which over the years, ate into Bajaj's market share considerably. Given the consumer mentality, battles are mostly fought on the price front, and looks and style have to take a backseat. Discounts are the order of the day, and products priced on the higher side face the danger of floundering.

      Motorcycles purr ahead...
      The arrival of the Indo-Japanese motorcycle (Hero Honda, TVS Suzuki), wiped the smile off the face of scooter manufacturers. This factor combined with the economic slowdown in India, effected a structural shift in the two-wheeler segment, pushing scooters to the background and thrusting motorcycles to the forefront.

      The rugged and elegant motorcycle was perceived as an attractive alternative to the scooter, especially in the rural areas. Although priced higher than scooters, the motorcycle appealed to rural masses because of its larger wheelbase and ruggedness. Currently, the rural segment accounts for 50-55% of total motorcycle sales, and only 25-30% of scooter sales. The robust rural economy, blessed with eleven successive normal monsoons, accounted for the success of the motorcycle, while the economic slowdown in the country (since the financial year 1997), accounted for the decline of the scooter - most scooter sales take place in urban areas. As consumer spending declined, so did the market for scooters.

      Over a period of two years, the unthinkable became a reality, the scooter market shrunk, making way for the motorcycle. The decline in scooter demand adversely affected manufacturers like Bajaj and LML, inducing them to enter the fray, in order to catch a piece of the motorcycle action.

      Poised for a comeback?
      There can be no two opinions on the view that Indian scooters are the cheapest in the world and therein lies tremendous potential for exports. As far as domestic demand is concerned, all is not lost for the scooter manufacturers. With the economy showing definite signs of a revival, and industrial growth on the upswing, manufacturers are hoping that this will translate into higher scooter sales.



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    Aug 23, 2017 03:19 PM