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The Motorcycle Diaries – Are Buyers Getting Aspirational?

More of everything is always good. More represents growth, it is desired, and more is needed.

More is especially cool when it comes loaded with more features, and more style, and more power, and more better engineering.

Motorcycles buyers like that. They want more. They want more power, more features and more style.

They are aspiring.

And that is shifting the market, slowly, but steadily. Customers are moving away from smaller bikes (<125 cc or what SIAM fondly calls the B2/B3 segments) towards medium sized (B4-B6 segments) bikes. The B4-B6 segments represent bikes between 125cc-250cc-engine displacements.

As motorcycle buyers become aspirational, they demand more power, size, style and features and hence a natural migration is happening towards bigger engine bikes. The move is also driven by an increase in average speeds in urban centers and the improvement of road infrastructure, which mandates the use of motorcycles as transport between two neighboring towns or between town centers and the outskirts.

The move to bigger capacity engines is also driven by the motorcyclist’s desire of self expression, independence and a somewhat misplaced notion of appearing sexy to the opposite sex when astride a bigger engine bike. However, this is a trait more prevalent at the top-end of the market only.

The EMMAAA Average Motorcycle Engine Displacement Index (AMEDI)

This move towards larger capacity motorcycles is evident when we look at the average engine displacements of motorcycle engines during the time frame 2005-2013 using the EMerging MArkets Automotive Advisors (EMMAAA) Average Motorcycle Engine Displacement Index (AMEDI).

Taking the engine displacement in 2005 as 100, EMMAAA indexes the average motorcycle engine displacement for every year subsequently. The AMEDI is calculated as the weighted mean of all motorcycle sales in a period.

In simple terms, EMMAAA adds up the engine displacement of all motorcycle units sold in the market in a year and divides the same by the total number of motorcycle sales units in that year.

Average Motorcycle Engine Displacement Index 2005-2013

AMEDI rises by 8% in the last eight years but it is the trend within that is important

This is the most accurate indicator of customer preference to motorcycle engine size as it is a representative product of the engine displacement and the sales volume.

The AMEDI value stands at 108 for the first ten months of 2013, a slight nudge up from the value of 107.23 in 2012. This is an indicator of an increase in preference towards larger capacity motorcycles.

It is worth noting that most of the motorcycle sales volumes are in the B2 / B3 segments and for the index to move upwards, even in small variations, needs a large increase in sales volumes for the B4-B6 segments.

SIAM data is not that convincing…

One just has to look at the SIAM motorcycle sales data for the first ten months of 2013 and tell us how wrong we are. For the period, the B2/B3 segments grew by 2.1% over prior year. Meanwhile, the B4-B6 segments declined by nearly 2.6% over the same period. In isolation, the first ten months sales data for 2013 indicates that customers are actually buying smaller engine bikes.

Even a finer look at AMEDI indicates that the index has actually declined from 108.33 in 2008 to a value of 108 in 2013.

So why is EMMAAA so firm about an overall increase in motorcycle engine displacements in the future?

It is the finer trend in AMEDI

While the AMEDI has grown by only eight points in the last eight years, it is the trend within that is significant. The Index grows at a fast pace between 2005 & 2008. This three year period sees the index growing by more than 8%. This was also the period when the economy was strong, wage inflation was high and industrial growth was high.

In short, it was the time to be aspirational.

The index starts tapering off post 2009 and actually declines between 2008 and 2010. There is a 2% decline in the index, indicating that buyers were favouring smaller engines and fuel economy over speed and power. This was also the time when the economy started weakening.

The index has failed to gain any momentum in the recent years due to a stagnating economy. It is to be noted that because of the heavy volume of lower capacity 100cc bikes in the market, it is much more easier for the index to come down than to go up.

With an expected bounceback in economy by mid 2014, big bike sales are expected to gather momentum, likely pushing AMEDI upwards.

B2 rules the market

The B2 segment is by far the most popular motorcycle segment in the market. The segment currently represents motorcycles in the 75cc-110cc ranges. Actually, till March 2012, the B2 segment represented motorcycles up to 125cc engine sizes. However, starting  April 2012, SIAM bifurcated the segment into the B2 (75cc-110cc) and B3 (110cc-125cc) segments.

Most models in this segment are close to 100cc. The Hero Splendor, HF-Deluxe, HF-Dawn, Passion (and their cricket team of cousins) range of motorcycles dominates the segment. Bajaj offers the Platina. CT100 and Discover motorcycles while HMSI has recently introduced the CB Twister and Dream Yuga motorcycles in the segment. TVS Motor sells the MAX 100, Victor, Jive, MAX 4R, Star City and Sport motorcycles in the segment while Mahindra has the Centuro and Pantero in the segment. Overall, this segment accounts for more than half-a-million units every month.

Motorcycle sales by segment

The share of bigger engine motorcycles (above 125cc) is increasing – 2013 sales only YTD October

In comparison, the segment B3 accounts for only about 165,000 units a month. This segment includes the Hero Super Splendor, Glamour and Ignitor range of bikes while Bajaj sells the Discover and Platina range. HMSI has the CB Shine and CBF Stunner bikes in the segment, while TVS has the Victor GLX, Flame, Star City 125 and Phoenix bikes. Suzuki also offers the Sling Shot in the segment.

The B4, B5 and B6 segments together account for less than 200,000 units every month. They represent the performance end of the motorcycle segment and the major players are Bajaj Auto with its Pulsar range. Hero has the Achiever, Hunk, Xtreme and Impulse motorcycles in the segment while HMSI has the CB Unicorn and CBR 150R. Yamaha and Suzuki are also present in the segment.

Both groups of segments have different sales behavior. While the B2/B3 segments are more essential in nature, the bigger engine segments are discretionary purchases.

Engines are getting bigger even at a finer level

It is noteworthy that there is a small uptick in AMEDI for 2013 even though the B4-B6 segments are growing slower than the B2-B3 segments this year. This is because that within the B2/B3 segments, the B3 segment is growing at a much faster pace than the B2 segment. The B3 segment drove most of the growth in 2012, with 110cc-125cc (B3) engine size motorcycles cornering nearly all the additional numbers of 2012.

In comparison, the B2 segment (75cc-110cc) motorcycle segment stayed flat.

Looking at data from the first ten months of 2013, the B3 segment has delivered a growth of 5.86% over prior year period while the B2 segment could only manage a 1.04% growth over the first ten months of 2012.

This is important and indicates a change in preferences of the entry-segment customers as they seek bikes with slightly bigger engines, higher top-speeds and better acceleration. They also seek the benefits of better features (alloy wheels, electric start etc.) though with comparable fuel-efficiency and only marginally higher prices.  [one_whole boxed=”true”] SIAM’s much welcome new segmentation: From April 2012 onwards, SIAM has started providing two-wheeler sales data at a much more granular level. This has become possible because of a revised segmentation, which increased the number of SIAM motorcycles from an earlier four (B1, B2, B3 & B4 with no products in the B1 Segment) to as many as twelve now (B1-B12). While model level sales data is still not available, SIAM’s new segmentation provides a much better outlook of the industry than before. The new segmentation also provides a much better insight into the large capacity import bike segments as well.
B2: Engine Capacity ≥755 cc but < 110 cc
B3: Engine Capacity ≥110 cc but < 125 cc
B4: Engine Capacity ≥125 cc but < 150 cc
B5: Engine Capacity ≥150 cc but < 200 cc
B6: Engine Capacity ≥200 cc but < 250 cc
B7: Engine Capacity ≥250 cc but < 350 cc
B8: Engine Capacity ≥350 cc but < 500 cc
B9: Engine Capacity ≥500 cc but < 800 cc
B10: Engine Capacity ≥800 cc but < 1000 cc
B11: Engine Capacity ≥1000 cc but < 1600 cc
B12: Engine Capacity ≥1600 cc [/one_whole]

This is also alarming for Hero Moto Corp as most of the company’s sales come form the Cub platform based motorcycles with engine displacement of 97.6cc. While some sales have been moving away to the 109.1cc Passion XPro and the 124.2 cc Super Splendor, a large chunk still comes from the 97.6cc range. With customers preferring larger engine sizes, this becomes a weak flank for Hero Motor Corp.

Segregating the B4-B6 segments

Looking at 2013 sales, the individual behavior of the B4, B5 and B6 segments is shockingly contrasting.

The increase in popularity and features of the B3 segment has resulted in a decline for the B4 (125cc-150cc) segment. The B4 segment faces the challenge of identity. Most machines in the segment are 135c bikes like the Pulsar 135LS. They are getting marginalized, as customers often either choose smaller 110cc-125cc machines with similar features or bigger 150cc machines with significantly more power.

The B4 segment declined by nearly 3.5% in the first ten months of 2013, over prior year. This comes on top of a more than 20% decline in the segment in 2012, over 2011.

In 2012, the B5 segment (150cc-200cc) was growing strongly with a 18.9% increase in sales over previous year. The growth in segment exploded in terms of choices with products from Bajaj / KTM (Pulsar 180/200 and KTM 200) and TVS Apache RTR 180.

However, the segment declined in the first ten months of 2013, by more than 10%, over 2012. While Bajaj has been able to maintain a healthy growth trajectory in the segment, no upgrades to the Apache range mean that customers are moving away from TVS in the segment.

The story in contrasts continues with the B6 segment (200cc – 250cc), which shrank by 11% in 2012 because of having only a few products in the segment. The high prices of products in the segment and the availability of fresher products (Pulsar 200NS and KTM Duke 200) in the B5 segment has also seen customers shift into the lower segment. However, in 2013, the same segment has jumped up by 22% in the first ten months. This return to the B6 segment by the customer is driven by the price gap between the Bajaj Pulsar 200NS and the Bajaj Pulsar 220F. The smaller engine bike is priced about Rs 3000 more than the larger engine motorcycles and many enthusiasts are moving back to the larger engine option.

We stop this analysis at the B6 segment, as the segments above (B7-B12) are the subject of a separate analysis next week.

Forecast

EMMAAA forecasts two-wheeler sales to nearly reach 22-million units in 2018. This would be primarily driven by motorcycles, though the gearless-scooters, especially segment A3 will grow at a healthy pace as well.

[one_third boxed=”true”] A note before we close this analysis: EMMAAA is releasing its first forecast of the Indian two wheeler market and industry in mid-December. To ask for a sample, please email us at ridewithus@emmaaa.com  [/one_third]However, sales growth in 2013 is expected to be muted. EMMAAA forecasts that the hints of slowdown that started off in 2012 are likely to get stronger and 2013 sales are expected to grow by only 2.1% over 2012. Sales should see a mild recovery in 2014 with an expected growth of only 7.8%.

EMMAAA is the most optimistic for the B3 segment. The segment is forecasted to account for 5.02 million units in 2018, from the 1.78 million units in 2012, a CAGR of 18.9%. Changing customer preference for more feature-packed machines will send more customers into this segment.

The forecasted strong growth for the B3 segment will eventually lead to a much slower growth for the B2 segment. From 6.35 million units in 2012, the segment is likely to account for 8.08 million units in 2018, a CAGR of only 4.1%.

Slow growth is also forecasted for the B4 segment, which will grow at a CAGR of 5.1% from 1.41 million units in 2012 to 1.9 million units in 2018.

 

 

 

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