Two-Wheeler Dealers Brace For Subdued Festive Sales As Insurance, Higher Prices Hurt

Posted on: October 10, 2018, by :

Manjesh Prajapati, 21, saved up for over a year to buy a scooter. Yet, it remains out of his budget.

He zeroed in on the Honda Activa 5G to escape the ordeal of everyday commutes on crowded local trains and buses. When the finance graduate who lives in Worli, Mumbai, recently visited the showroom, he found that scooter had turned expensive by Rs 5,000. “As it is, petrol prices are high; now even motorbikes have become costlier.”

Automakers have passed on the higher costs because of a weaker rupee. What also added to the cost of buying a motorcycle or a scooter is the higher insurance premium. A higher upfront outgo, according to auto dealers, may dent festival season sales in October and November, which usually witness buoyant demand.

The regulator has made multi-year motor third-party insurance—which contributes to a pool for compensating accident victims—compulsory for all new two-wheeler owners. That has increased the premium by up to five-fold which has to be paid upfront at the time of purchase or insurance renewal. Additionally, a personal accident cover is also compulsory at a fixed annual premium of Rs 750.

Some insurers were bundling in a five-year personal accident cover as well. That forced the Insurance Regulatory and Development Authority of India to come out with a clarification that the personal accident cover can be bought for a year. Only multi-year third-party cover is mandatory, the regulator reiterated as it looks to curb the number of uninsured vehicles plying on Indian roads to comply with the Supreme Court’s order. While that will bring down the premium, it’s still higher than what buyers earlier paid for a one-year plan that included motor third-party and personal accident cover.

“A customer has to pay about Rs 50,000 for an entry-level bike, for which the ex-showroom price is nearly Rs 45,000,” Vinkesh Gulati, vice-president of Federation of Automobile Dealers Associations, an industry body for automobile retail, told BloombergQuint over phone. In most cases, financing is available only for the ex-showroom price that doesn’t include insurance and registration charges, he said.

Nikunj Sanghi, president of Automotive Skills Development Council, an industry body for skill development in the auto sector, said a higher upfront cost pinches buyers of two-wheelers more as insurance constitutes nearly 20 percent of the new vehicle cost. Sales could drop by 10-15 percent as down payments have increased and there hardly are financing options available for the on-road price, he said.

Even when the funding for on-road price is available, the equated monthly instalments have risen by about 20-25 percent, due to which people are either deferring purchases or are buying second-hand vehicles, said Sanghi.

Notes from brokerages for October reiterated that. Higher cost of ownership led by an increase in insurance and interest costs—and rising fuel prices—has deterred people from purchasing vehicles, according to Motilal Oswal and Centrum Research.

Gulati estimated the fall in festive season sales at 20-25 percent. “Pre-bookings for the Navratri festival have gone down by around 40 percent compared with the same period last year, and it seems that the downward trend in sales will continue due to increase in insurance prices.”

Some buyers, however, see a silver lining in a higher upfront cost. “I’m relieved that I don’t have to go for insurance renewal every year,” said Vinay Narvekar, 41, a Mumbai-based electrician. “The people I know stop renewing their motor insurance after the first year.”

Automobile manufacturers and dealers are going all-out to boost flagging sales with freebies and discounts. Bajaj Auto Ltd. announced a ‘5-5-5’ offer from Oct. 5 through which customers get five years of free own-damage insurance cover, five free services and five years of free warranty on select Bajaj motorcycles. Yamaha Motor India is giving free insurance offers on select motorcycle models. Some dealers in Mumbai are offering free jackets and riding gear with two models of Kawasaki motorcycles.

Left with no other option, Prajapati has decided to save up in the next few months to buy the scooter. “I really wanted to buy a two-wheeler this Navaratri, but it doesn’t look like I’ll be able to.”