The strike and production cut at Honda Motorcycle & Scooter India Pvt Ltd (HMSI) has created an opportunity for other two-wheeler makers to sell more units during the festival season. In the absence of Honda’s flagship Activa, there has been an increased demand for other scooters like Scooty Pep, Passion Pro and Access.
The labour strike at HMSI's Manesar facility has forced the company to cut down production by more than 50% and it had even threatened to move to an alternate location. "HMSI dealers are under-stocked for the festive season. Demand for our products has gone up during to festive season but at the same time our production also fell due to the strike and it will have a direct impact on our sales," said a company official.
In normal days, HMSI's flagship Activa has a waiting period of 30 days, but owing to the labour problem, the waiting period could be double that duration, the official added.
According to some reports, HMSI's production has come down to half of its daily capacity of 4,200 units. HMSI has so far invested Rs10 billion in India and has an annual capacity of 1 million units, which it had planned to increase to 1.5 million units in the next three years.This shortage has created a demand for two-wheelers from other manufacturers like Hero Honda Motors Ltd, Bajaj Auto Ltd and TVS Motors Ltd.
“There is surely a demand currently, but this is due to the industry buoyancy and not because a competitor manufacturer is facing difficulties at their plant. I am sure they will find out a way soon. We are not looking at the deficit that would be created due to the problem,” said Millind Bade, general manager, marketing, Bajaj Auto. While availability of Honda models like Activa and Honda Shine have been adversely affected, business for TVS, Hero Honda and Suzuki is looking up. Two-wheelers like Scooty Pep, Passion Pro and Access are much in demand in the festive season.
“Activa will not be available for the next three to four months and at present the demand for scooters like TVS's Scooty Pep and Suzuki's Access is high,” said a Mumbai-based dealer. “Acitva and other Honda models will be available only after Diwali. There is a great demand for Hero Honda Passion Pro,” added another dealer.
Motilal Oswal Securities Ltd, in a report said, "While the below average monsoon coupled with hardening of interest rates might have an impact on demand in the second half of FY10, there has been no visible impact of poor monsoon on demand yet."
"Apart from conducive macro scenario in terms of better credit availability, lower interest rates and improved consumer sentiments, the second quarter of FY10 witnessed pre-festive inventory build-up leading to robust volumes for auto companies. Newly launched products in recent months also gave a boost to the growth on a year-on-year basis,” said Sharekhan Ltd in a report.
During September, total two-wheeler volumes rose 7% year-on-year with Bajaj Auto clocking 15% growth on the success of its new launches. Hero Honda, however, reported a muted 4% growth due to some issues with its suppliers.
Last year, HMSI sold about 1.1 million units and was planning to increase production to 1.5 million units with the help of a third assembly line, but owing to the labour problems the company could not operationalise this facility. "We have approached the government, the court, the labour department. The talks are on. They have issued a notice to the workers’ union because this is against the Industrial Disputes Act. Workers have to answer why they have gone for the slowdown in production," the official said.
Labour problems at HSMI are not new. After the violent strike at HMSI that rocked Gurgaon in 2005, HMSI and the workers union had signed a long-term agreement in 2006 that expired in July. Since then, the workers and the management have been re-negotiating the terms and conditions.
Officials from Hero Honda and TVS Motors were not immediately available for comments.