Monday, December 04, 2006

Bottom lines bleed as Hero Honda, Bajaj Auto play to the gallery

It's been a windfall for the customer but it has left analysts wincing. The Hero Honda-Bajaj price war for a larger share of the motorcycle market has hit margins and pinched bottom lines for both companies.

Both Hero Honda MD Pawan Kant Munjal and Bajaj Auto MD Rajiv Bajaj now admit the slugfest is a bit like riding the tiger. But no one wants to get off—at least not yet anyway.

Speaking to ET, Mr Munjal admitted the race for market-share was beginning to hurt. “Current competition in two-wheelers is beginning to affect the sector and with huge increases in global commodity prices the situation is only likely to get worse,” he said. “At some stage all of us will have to get wiser. We will have to sit down together and sort out a way to compete in a way that will work for the entire industry.”

Arch rival Rajiv Bajaj too agreed the price bleeding is getting cut throat. “The race between Bajaj Auto and Hero Honda for market-share is destroying margins for both companies and analysts aren't too happy about that,” he said. “But we are betting our entire company on the entry level market shifting to a different product platform in two years.”

So firm is the focus away from 100 cc-four stroke that Bajaj hasn’t lined up a Plan B fall back action. “We know that in the entry-level segment, it's a commuter positioning and I am betting we will be able to shift that consumer to something sexier,” Mr Bajaj explained.

“But I won't ask the consumer to invest more on commuting. We are in fact going to make it cheaper for them through better fuel efficiency and improved technology.” The Bajaj game-plan, he said, was to move a substantial part of the 4 lakh out of 5.5 lakh motorcycles in a month that are now 100cc/four stroke bikes.

“The 100cc/four stroke bikes are as out dated now as the 150cc/two stroke scooters were in the 90s so there's no reason why they shouldn't share the same fate,” Mr Bajaj added.

Understandably both companies say there has been no price cutting on their part. While Hero Honda marketing veep Anil Dua said that the company only ran promotional schemes during the Dussera-Diwali season and actually increased prices in August, Bajaj says it offered a “better price on the Platina and 0% financing schemes on Platina and Discover” during the festival season.

Bajaj, also says it has already tried to reverse the trend with small hikes on the Platina and Discover in November and upgrade hikes on the Pulsar 150 and 180 cc. “Come January we will take another round of Rs 500 hikes on the Platina and Discover,” said Mr Bajaj.

Source:- TheEconomicTImes