Bajaj Auto Case

63Case Study

Bajaj Auto: From Chetak to Pulsarand Beyond

Bajaj Auto Ltd.: A BackgroundNoteBajaj Auto Ltd. is a public limited companyin India, engaged in the business ofmanufacturing and marketing two-wheelerand three-wheeler motor vehicles forpersonal and commercial transportation.It is one of the dominant players in theIndian automobile industry as a whole.Bajaj Auto belongs to what is referred to asthe Bajaj Group, which comprises of34 companies. The Bajaj Group is amongthe top 10 business houses in India. BajajAuto Ltd. is the flagship company of thisgroup and it reported a gross sales turnoverof 121,181 mn during 2009-10. Theregistered office of the company is at Akurdi

near Pune, in the state of Maharashtra.It has three operational plants at Walujand Chakan in Maharashtra andPantnagar in Uttarakhand, with a totalinstalled capacity of 3,960,000 vehiclesper annum.

Exports contribute to around 25% of BajajAuto’s turnover. During 2009-10, thecompany exported 891,002 two and three-wheelers as against a domestic sale of1,961,578 vehicles. The company has twosubsidiaries. One of these is PT Bajaj AutoIndonesia, which assembles and sells Bajajmotorcycles in Indonesia. The other is BajajAuto International Holdings BV,Netherlands, which is intended to makestrategic overseas investments. This

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Case Study

Bajaj Auto Ltd., which commenced production of scooters in 1960, is the longest survivingplayer in the Indian two-wheeler industry. At the time of its completing 50 years oftwo-wheeler manufacturing in 2010, its annual turnover had crossed 120 bn. BajajAuto has survived and is doing well, while many of its competitors fell to the onslaughtof dramatic changes brought about by the liberalization introduced in 1991. However,Bajaj Auto which was the undisputed leader in the Indian two-wheeler market fordecades, was pushed to the second place in 2001-02 by Hero Honda Motors Ltd.While the Indian market shifted from scooters to motorcycles, Bajaj Auto followed thetrend, though with a slight lag. But it failed to exploit the shift in demand within thescooters segment from geared scooters to ungeared scooters. The market dynamics hasbeen undergoing more rapid changes in the recent years, and the years to come would beno different. Can Bajaj Auto regain its lost position; and if so, how?

Harish R*

About the Author* Faculty Member, IBS, Bangalore, India. E-mail: [email protected]

The IUP Journal of Marketing Management, Vol. X, No. 1, 201164

subsidiary has acquired 31.72% stake inKTM Power Sports AG, a sports motorcyclemanufacturer based in Austria. Bajaj Autoalso has a small manufacturing facility inChina.

The Chairman of the Bajaj Group andBajaj Auto Ltd., Rahul Bajaj, is thegrandson of Jamnalal Bajaj who was aclose associate and ardent supporter ofMahatma Gandhi. The top managementof Bajaj Auto thus exhibits strongnationalistic and patriotic leanings andis often in the forefront of lobbying onissues related to foreign investments andthe need for providing Indian players witha level playing field. The promoters belongto the Marwari community fromRajasthan state. This community isrenowned for sharp business acumen. TheBoard of Directors includes Mr. RahulBajaj’s three cousins, his son-in-law andalso his two sons, Rajiv Bajaj and SanjivBajaj. The promoters and their associatestogether hold more than 60% of thecompany’s equity capital.

A major part of this case study explores andexplains the evolution of the Indian two-wheeler industry and Bajaj Auto’sresponses to various situations as they arosefrom time to time.

Sellers’ Market and Dominanceof Geared ScootersBajaj Auto had its origins in 1945 in thename of Bachraj Trading Corporation Pvt.Ltd. (BTCL), and began selling importedtwo and three-wheelers in the Indianmarket from 1948. Later, when theGovernment of India issued licenses fordomestic manufacture, Bajaj Auto acquiredone and commenced the manufacture of

Vespa scooters in 1960 by commissioninga plant at Akurdi, near Pune. Thetechnology was obtained from Piaggio ofItaly. BTCL was renamed Bajaj Auto Ltd.in 1960 and the company went public. The100,000th vehicle was rolled out ten yearslater in 1970.

India is now the second largest two-wheelermarket in the world after China. India’stwo wheeler industry sold 10.5 millionvehicles during 2009-10, and crossed the10 million vehicles mark for the first time(Refer Appendix). However, in the earlyyears of this industry, during the 1960s and1970s, the number of two- and three-wheelers sold in India was negligibly smallby comparison. Among two-wheelers,scooters were the most popular. And therewere only two prominent players in thissegment—Bajaj Auto and AutomobileProducts of India. The latter manufacturedscooters and three-wheelers (calledautorickshaws in India) under the brandname Lambretta, with licence fromInnocenti of Italy. The motorcycles of thosedays were heavy and difficult to drive.Consequently, their usage among thecivilian population was limited, and theywere used more by defence and policeforces. Also, motorcycles were moreexpensive than scooters. There wereessentially three manufacturers ofmotorcycles in India—Royal Enfield, IdealJawa and Escorts. There were twoprominent brands of mopeds—Suvega fromMopeds India Ltd. and Luna from KineticEngineering. The Hero Group and the TVSGroup stepped into the mopeds businesssubsequently in 1978 and 1980 respectively.The mopeds attracted a significant clientelebecause of their low cost and lightweightbicycle-like construction.

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Under the licensing regime that was thenprevalent in India, there was no free entryof new players and no additions to theexisting manufacturing capacities withoutsupplementary licence. Foreign investmentsand new technical collaborations withforeign companies were not encouraged. Asa result, the competitive sphere wasartificially controlled, thereby resulting ina sellers’ market.

After termination of the collaborationagreement with Piaggio, Bajaj Autolaunched its own indigenous version of the1950s model Vespa scooter in 1972, andnamed it as Chetak. The name Chetakevoked strong patriotic feelings, as it wasthe name of the horse of Maharana Pratap,a valiant warrior king from Rajasthan wholived in the 16th century. The horse Chetakhad died protecting its master in a battleagainst the Moghuls. Another model—Bajaj Super, was launched in 1976, whichalso went on to become quite popular.

Both Chetak and Super were gearedscooters with fuel-inefficient andenvironment-unfriendly two-stroke engines.The engines were mounted to one side, thusmaking the vehicles unbalanced.

Though based on outdated technology,Bajaj Auto’s scooters were considered to beamong the best that were then available inIndia, and demand far exceeded supply.Prospective customers had to book for themin advance and wait for years for one’s turn.Consequently, Bajaj scooters were activelytraded in the black market at substantialpremiums.

Bajaj Auto had established itself as theundisputed leader in the Indian

two-wheeler industry. Its Chetak scooter inparticular was the prized possession of thetypical middle class Indian household.Husband, wife and kids rode on it together,and it was an aspirational family vehicle.

In 1982, Rahul Bajaj—Bajaj Auto’sChairman—is said to have remarked: “Mymarketing department? I don’t require it.I have a despatch department. I don’t gofrom house to house to sell”.1 This remarkwas made at a time when the company’sorder book far exceeded its annualproduction capacity and there was noincentive for innovation. Between 1960and 1991, the company essentially focusedon decreasing costs, and its R&D waslargely limited to indigenizing importedcomponents. This was quite logical underthe circumstance, as the then governmentemphasized on ‘import substitution’ toreduce foreign exchange outgo; imports wererestricted and the customs duties werequite high.

Incidentally, in a bid to retain its dominantposition in the market, Bajaj Autoestablished a second plant in Waluj nearAurangabad in 1985, after obtainingadditional license for this purpose.Subsequently, to take advantage of theliberalized regime, a third plant wascommissioned at Chakan near Pune in1998. A fourth plant at Pantnagar inUttarakhand state went on stream during2007. The Akurdi plant which was inoperation since 1960 was shut down in2007 as it had become disadvantageousdue to lack of tax benefits, an ageingworkforce, octroi charges and logistics-related issues. In contrast, the Chakanplant was highly cost-efficient, while the

1 Gupta V, Gollakota Kamala and Srinivasan R (2005), Business Policy and Strategic Management:Concepts and Applications, p. 510, Prentice Hall of India, New Delhi.


Pantnagar plant enjoyed tax benefitsextended by the local state government.Shifting production to Pantnagar resultedin a cost saving of 5,000 to 6,000 perbike.

Entry of Japanese Motorcyclesand Decline of Geared ScootersThe 1980s witnessed the beginning of a newwave of change in the Indian two-wheelerindustry. The Government of Indiapermitted the formation of joint venturecompanies in the two-wheeler sector withminority foreign participation. FourIndo-Japanese joint ventures wereestablished as a result, and they offeredfuel-efficient, easy to ride and elegantlybuilt 100cc motorcycles. Three of theseIndo-Japanese joint ventures went onstream in 1984. These were—Ind-SuzukiLtd. (TVS Group and Suzuki MotorCorp.), Hero Honda Motors Ltd. (HeroGroup and Honda Motor Corp.) andEscorts-Yamaha Motors Ltd. (Escorts Ltd.and Yamaha Motor Corp.)

These motorcycles caught the imaginationof the younger generation and began sellinglike hot cakes. Bajaj Auto realized thethreat of these new entrants just in time.It entered into a technical alliance withKawasaki Heavy Industries of Japan andthus made its way into the motorcyclesbusiness as the fourth new entrant. TheKawasaki Bajaj KB 100 motorcycles werelaunched in 1986. But the main thrust ofBajaj Auto continued to be on its scooters.

The sudden onslaught by Japanesemotorbikes took the existing Indian playersin the motorcycle business—Ideal Jawa,Royal Enfield and Escorts (which madeRajdoot motorcycles) unawares. Ideal Jawashut shop and Escorts discontinuedRajdoot motorbikes. Royal Enfield wasacquired by the Eicher Group and nowcaters to a niche clientele.

The Indian two wheeler market which wasdominated by scooters for a long time nowbegan to shift towards motorcycles. The saleof motorcycles eventually overtook that ofscooters in the year 1999-2000(Table 1).

Table 1: Shift in India’s Two-Wheeler Market from Scooters toMotorcycles (1994-95 to 1999-2000)

1994-95 528,043 1,130,248 549,940 2,208,231

1995-96 660,672 1,321,217 678,116 2,660,005

1996-97 802,266 1,400,758 762,450 2,965,474

1997-98 913,956 1,344,186 784,205 3,042,347

1998-99 1,176,779 1,396,759 829,933 3,403,471

1999-00 1,612,895 1,357,483 806,341 3,776,719

Year Motorcycles Scooters Mopedsand Step-Thrus

Total TwoWheelers

Source: Society of Indian Automobile Manufacturers’ Data

(Sales in Nos.)

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However, Bajaj Auto continued to remainlargely in the scooters era. During the year1999-00, Bajaj Auto sold 1,240,621 twowheelers, of which an overwhelming859,285 were scooters, 255,176 weremotorcycles and 176,194 were step-thrus.

The theme of Bajaj Auto’s 1999-00 AnnualReport was ‘Change’. In the Chairman’sletter, Mr. Rahul Bajaj very clearlyrecognized the market shifted away fromscooters to motorcycles; and within thescooters segment, from traditional metalbodied scooters to sleeker scooterettes.However, the fondness for the ruggedside-engine mounted traditional scooterscontinued unfazed. He wrote “Thetraditional scooter market...is a veryprofitable segment and cannot be ignored.We will pursue market expansion byintroducing new four stroke models andoffering attractive finance schemes. I do notbelieve that this market will die the waysome pundits have predicted. A countryof a billion people shall always haveenough families who will begin theirmotoring lives with traditional, low costscooters”. At that time, the traditionalgeared scooters were Bajaj Auto’s mostprofitable two-wheelers.

At the turn of the century, Bajaj Autocontinued to be the leader in the Indianscooters market with a market share ofaround 45%, followed by LML, TVS,Kinetic Honda Motors Ltd. andMaharashtra Scooters Ltd. (a jointventure of Bajaj Auto with thegovernment of Maharashtra). As a result,Bajaj Auto continued to focus on thissegment with new sales promotion andfinance schemes and also by launchingnew products.

Shifting to more recent times, in 2009-10,motorcycles constituted around 80% of theIndian two wheeler market by numbers.They were followed by scooters at 15% andmopeds/step-thrus at 5%. Better mileage,larger wheel base and superior stylequotient shifted the market further towardsmotor cycles during the first decade of the21st century. Their ability to take on roughroads made motor cycles popular in ruralareas.

The Advent of GearlessScootersYet another shift that took place aroundthis time was the shift away from gearedscooters to gearless scooters. Though thetotal number of scooters sold was on adeclining trend, within the scooterssegment, the new age gearless scooters weretaking away market share from the traditionalgeared scooters. And the sale of gearlessscooters overshot that of geared scooters inthe year 2002-03 (Table 2).

Bajaj Auto on the other hand continuedto be wedded to its geared scooters ofyesteryears. In fact, while the sale of itsgeared scooters plummeted rapidly, itsgearless scooters could not meet up to thechallenge of competitors’ offerings and theirsales remained almost stagnant (Table 3).

During 1995, when Bajaj Auto completed50 years, agreement was signed with TokyoR&D for the development of gearlessscooters. During the initial years, Bajaj hadthree models of ungeared scooters—Spice,Spirit and Saffire. Two new models—Waveand Kristal, were introduced in later years.

In the company’s annual report of2002-03, Bajaj Auto’s ChairmanMr. Rahul Bajaj stated: “Last year, in my


Table 2: The Shift from Geared Scooters to Gearless Scooters(1994-95 to 2002-03)

1994-95 940,684 189,564 1,130,248

1995-96 1,079,116 242,101 1,321,217

1996-97 1,137,579 263,179 1,400,758

1997-98 1,076,385 267,801 1,344,186

1998-99 1,114,346 282,413 1,396,759

1999-00 978,668 378,815 1,357,483

2000-01 592,411 408,261 1,000,672

2001-02 531,179 410,260 941,439

2002-03 335,917 532,410 868,327

Year Geared Scooters Gearless Scooters Total Scooters

(Sales in Nos.)


Table 3: Bajaj Auto’s Two-Wheeler Sales Composition (1998-99 to 2002-03)

1998-99 811,441 47,844 200,183 182,581 1,242,049

1999-00 739,916 69,335 255,176 176,194 1,240,621

2000-01 435,699 75,596 422,016 120,590 1,053,901

2001-02 407,670 66,603 656,018 68,005 1,198,296

2002-03 268,656 60,757 868,138 54,363 1,251,914

Year GearedScooters

GearlessScooters Motorcycles Step-Thrus Total Two-

Wheelers

(Sales in Nos.)

Source: Bajaj Auto Ltd.’s Annual Reports

Chairman’s letter, I had predicted that ‘wehave probably succeeded in arresting thedecline in the sales of geared scooters’.I was wrong. ...both the industry’s andBajaj Auto’s sale of geared scooterscontinued to fall in 2002-03. While Iclearly recognize the importance of drivingthe motorcycle market, I still refuse to

believe that the days of scooters are over.We need to combine the qualities ofmotorcycles and those of scooters in radicallynew models. Your company is now engagedin such a project. The ‘scooterwala’2 in meis waiting to see the outcome”.3

By 2009-10, the Indian scooters markethad bounced back to 1.46 million numbers,

2 A vendor of scooters.3 Bajaj Auto Ltd.’s Annual Report 2002-03, p. 4.

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and almost all of the scooters sold were ofthe gearless variety.

The origins of the gearless scooter in Indiacan be traced back to 1985, when KineticEngineering, an Indian mopedsmanufacturer, entered into a joint venturewith Honda Motor Corporation of Japanto launch India’s first gearless, electric startscooter—the Kinetic Honda 100—whichwas a huge success.

TVS launched its gearless scooter TVSScooty in 1994. This model and itssubsequent upgradations—Scooty Pep andScooty Pep+ have seen tremendous successin the Indian market. Scooty and its variantsattracted women riders in a big way, thuscreating a new target market which wascapitalized by other entrants in later years.

With further liberalization in 1991, theforeign companies were no longer underobligation to continue their partnershipwith Indian promoters. In 1998, Hondasold its stake in the Kinetic Honda jointventure to the Kinetic Group, and enteredthe market independently through a newcompany—Honda Motorcycles andScooters India Pvt Ltd. (HMSI). HMSIobserved that the scooters market wasdeclining because geared scooters werelosing favor with the customers; andtwo-stroke engines were unable to meet theincreasingly stringent pollution controlnorms. Honda had well-proven four-strokeengine technology for scooters and enteredthe market with gearless scooters havingfour-stroke engines. These scooters were fuelefficient and also high on style, comfort,ease of use and maintenance. HMSIlaunched its first scooter Activa, in 2001,and this rejuvenated the Indian scootermarket. This was followed by three moremodels—Dio, Aviator and Eterno.

More recently, Hero Honda Motors Ltd.introduced its first gearless scooter—Pleasure—in January 2006, whichspecifically targeted women riders andachieved considerable success.

But Bajaj Auto pursued with its gearedscooters relentlessly. During the 1990s, theChetak brand was nurtured through theHamara Bajaj (Our Bajaj) advertisingcampaign. This hugely popular andfondly-recalled television commercialprojected the Chetak scooter as BulandBharat ki Buland Tasveer (The robust imageof a strong India), thus giving it the statusof a national icon. Even as recently as in2004, Bajaj Auto took the effort to launchthe Chetak with a four-stroke engine. Afterrepeated efforts at revival, the Chetakscooter was finally withdrawn and laid torest only in December 2005.

Decline in Bajaj Auto’s MarketShareHowever, the increase in motorcycle salesmade up for the decline in scooter sales,thus maintaining Bajaj Auto’s totaltwo-wheeler sales in the vicinity of 1.2million numbers per annum during theperiod 1998-99 to 2002-03. This washowever not a happy situation as the totaltwo-wheeler market was growing rapidly,and Bajaj’s market share was declining yearafter year (Table 4).

Bajaj Auto Loses ItsPre-Eminent PositionThe above referred developments also hadanother unintended consequence fromwhich Bajaj Auto has not been able torecover till date. Hero Honda Motors Ltd.moved ahead of Bajaj Auto Ltd. intwo-wheeler sales in the year 2001-02, and


has remained the market leader in Indiaever since. Bajaj Auto thus lost itsleadership position, which it had enjoyedvirtually unchallenged for several decades(Table 5).

Table 5: Two Wheeler Sales – Bajaj Auto and Hero Honda(1998-99 to 2002-03)

Year Bajaj Auto’s Sales Hero Honda’s Sales

1998-99 1,242,049 530,545

1999-00 1,240,621 761,623

2000-01 1,053,901 1,029,510

2001-02 1,198,296 1,425,302

2002-03 1,251,914 1,677,535

Source: Annual Reports of Bajaj Auto Ltd. and Hero Honda Motors Ltd.

Bajaj Auto’s Exit and Re-Entryinto the 100cc Bikes MarketOver the years, Bajaj Auto has shifted focus

from low-end entry-segment motorcycles to

the mid-range segment. Of the total

motorcycles sold by the company, the share

of entry-segment bikes declined from over

40% in 2004-05 to less than 25% during

2008-09. Over the same period, the share

of mid-range motorcycles sale increased

from less than 50% to over 60%.

In its Annual Report of 2007-08, Bajaj Autohad observed that although the entry level100cc bikes constituted the largest segmentof the Indian motorcycle market, the shareof this segment had declined substantially

from 88% in 2003-04 to 64% in 2007-08(Table 6).

The Annual Report went on to explain:“Although this is the largest segment in themotorcycle market, ...it has been steadilyfalling in percentage terms since 2003-04.It is also a sector characterized by intensecompetition from all players, which isaccompanied by aggressive pricinginitiatives and promotions. All profitablebusiness depends on differentiatedmarketing. ...Hence Bajaj Auto is focused

Table 4: Bajaj Auto’s Share of the Indian Two-Wheeler Industry(1998-99 to 2002-03)

1998-99 1,242,049 3,403,471 36.51999-00 1,240,621 3,776,719 32.82000-01 1,053,901 3,745,516 28.12001-02 1,198,296 4,318,531 27.72002-03 1,251,914 5,053,562 24.8

Year Bajaj Auto’s Sales Industry’s Sales Bajaj Auto’s Share(%)

(Sales in Nos.)


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on moving customers to the ‘125cc+segment’, representing high-tech, highquality, fun to ride bikes. This is its strengthsince it is the leader here with close to 50%market share owing to four well-establishedbrands—Pulsar, Avenger, Discover andXCD. The ‘125cc+ segment’ is already36% of the motorcycle market and isgrowing. Bajaj Auto will accelerate thistrend of moving customers with four new125cc+ category motorcycles in 2008-09.In this way, Bajaj Auto will gain not justmarket share but will do so profitably. Overtime, 100cc bikes should cease to be ofmajor significance, as have gearedscooters”.4

Accordingly, Bajaj Auto announced itswithdrawal from the 100cc segment inMarch 2007 itself,5 limiting its product lineto the 125 to 220cc range of motorbikes,which gave more power, but lower fueleconomy. As can be seen from the datapresented in Table 7, the result was

shocking. The company’s share in themotorcycles market steadily built up overthe previous three years from 23.7% to33.5%. This dropped sharply over the nexttwo years to 28%. In fact, the industry’ssale of 100cc motorbikes itself witnessed asteep downslide during 2007-08, partlycontributed by the vacuum created by BajajAuto’s withdrawal from this segment.

Bajaj Auto reentered the 100cc segment inJuly 2009,6 with a new model, the Discover100 DTS-Si,7 which sold 500,000 unitswithin 225 days of its launch, thus creatinga new record.8 The Discover 100 offeredseveral advantageous features such as BajajAuto’s patented DTS-Si (Digital TwinSpark—Swirl Induction) engine, on-roadfuel efficiency of 80 kmpL of petrol, longwheel base, nitrox suspension, 5 speed gearbox and electric start. Bajaj Auto’s overallmarket share in motorcycles recovered to alevel of 29.7% in 2009-10. Specifically inthe 100cc segment, Bajaj Auto’s share

4 Bajaj Auto Ltd.’s Annual Report 2007-08, p. 13.5 Bajaj Auto May Soon Exit 100cc segment. Mar 19, 2007. Financial Express. Retrieved from http://

www.financialexpress.com/news/bajaj-auto-may-soon-exit-100-cc-segment/194382/#6 Entry Level 100cc Bikes Pitch Bajaj Auto and Hero Honda for Market Share Supremacy. May 11, 2010.

Wheels Unplugged Automobile Industry News. Retrieved from http://www.wheelsunplugged.com/ViewNews.aspx?newsid=6482

7 Digital Twin Spark Swirl Induction Technology patented by Bajaj Auto.8 Op.cit. Entry Level 100cc Bikes Pitch Bajaj Auto and Hero Honda for Market Share Supremacy.

Table 6: Changing Composition of the Indian Motorcycle Marketin Terms of Engine Capacity

2003-04 88 2 102004-05 81 9 102005-06 74 16 102006-07 69 20 112007-08 64 23 13

Year 100cc (%) 125cc (%) 150cc+ (%)

(Sales in Nos.)



9 Hero Honda vs Bajaj (Two-Wheeler Market in India), available at http://www.prlog.org/10641042-hero-honda-vs-bajaj-2-wheeler-market-india.html

10 “Bajaj Auto Cruises on New Brand Strategy”, Hindu Businessline, January 12, 2010,available at http://www.thehindubusinessline.com/2010/01/12/stories/2010011250130300.htm

Table 7: Bajaj Auto’s Share of the Indian Motorcycle Industry(2003-04 to 2009-10)

2003-04 1,023,551 4,316,777 23.7

2004-05 1,449,710 5,217,996 27.8

2005-06 1,912,306 6,200,749 30.8

2006-07 2,379,499 7,099,551 33.5

2007-08 2,139,779 6,544,349 32.7

2008-09 1,907,853 6,806,114 28.0

2009-10 2,506,791 8,446,591 29.7

Year Bajaj Auto’s Sales Industry’s Sales Bajaj Auto’s Share (%)

(Sales in Nos.)

Sources: Bajaj Auto Ltd.’s Annual Reports and Societyof Indian Automobile Manufacturers’ Data

increased to 17% from 10.5% during2008-09.9

The 100cc segment is dominated by HeroHonda with its Splendor and Passionmodels. Among the entry-segment players,Hero Honda is better placed to meet thechallenges posed by anticipated pricecompetition because of its higher scaleeconomies. Also, its models enjoy a lowrunning cost image, and the company hasthe most extensive sales and service network.

In January 2010, Bajaj Auto reported thatthe recently launched Pulsar 135 hadbegun to pick up volumes and the combinedsales of all Pulsar models (including 150,180 and 220cc engine versions) was 60,000per month as against the targeted output of100,000 per month by March 2010. TheDiscover models were on track with sales of100,000 per month, of which the new100cc version contributed to 70%, withDiscover 135 making up the rest.10

The Discover range is targeted at the lowend commuter segment, while the Pulsaris a ‘sporty’ bike, catering to the premiumsegment. While Bajaj Auto does havehigh-end bikes from Kawasaki and KTM(a European motorcycle company inwhich Bajaj Auto acquired stake recently),they belong to a niche category andtranslate into only a limited volume ofsales.

In February 2010, during the launch ofPulsar 200, Bajaj Auto reiterated itslong-term intent to move up the valuechain towards higher engine displacementperformance bikes. The company’sManaging Director Mr. Rajiv Bajaj hadsaid, “Our strategy is not to do the 150ccand we want to get out of the 150cc inthe performance segment just like we wantto get out of the 100cc/four-stroke in theentry level segment.” He added, “The150cc market is getting very crowded. BAL

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sells 8,000-10,000 units of the Pulsar180 every month and we thought we couldupgrade some of those numbers”.11 Thetarget was to sell 5,000 units per monthof the high end models—Pulsar 200and 220.

Bajaj Auto has different types of outlets tosell its various products. Around 50Probiking showrooms are at the very top,and they sell high-priced bikes, includingKawasaki Ninja and Pulsar 200 and 220.About 60 large dealerships in the majorcities come in the second rung. There arearound 500 other dealerships across thecountry which sell the volume range.A rural dealership network is beginning tobe developed as also a separate commercialvehicles network for selling three wheelers.

Resurgence in the IndianScooters MarketThe sale of scooters, which had dipped toan all-time low of 0.87 million in2002-03, shot up to a new high of 1.46million during 2009-10, which was evenhigher than the previous peak of 1.40million witnessed in 1996-97. Most of thescooters now sold are of the gearless variety.

Honda Motorcycles and Scooters India(HMSI—a 100% subsidiary of HondaMotor Corp. of Japan) currently has the leadposition in the Indian scooters market, andat the second place is TVS Motor Company.Over the years, several players such asScooters India Ltd., LML and others exitedfrom this market, because of inability tocarry on a profitable business in the face of

declining sales of geared scooters.Nonetheless, this category has seen newentrants in the recent past, offering gearlessscooters. Suzuki Motorcycles India (a 100%subsidiary of Suzuki Motor Corp. of Japan)launched Access 125 in September 2007.More recently, Mahindra & Mahindraacquired the business assets of KineticMotors in July 2008 to launch a new rangeof scooters.

Of late, scooters have become fairlypopular, particularly in urban areas andamong women riders. The scooters marketis expected to grow further in the comingyears. However, due to lower unit volumesper model, the profit margins wouldcontinue to be under pressure. There is alsothe possibility of further churn and exit ofweaker players from this market.

HMSI’s Divisional Head (Sales andMarketing), Mr. Naresh Rattan, is reportedto have said, “An increasing number ofpeople are opting for scooters over bikesbecause they are hassle-free and veryconvenient, with mileage almost on a parwith motorcycles. We do not think that agrowth of 15% year-on-year is difficult toachieve”.12

Bajaj Auto’s Withdrawal fromScooters and Ambition to beNo. 1 in MotorcyclesSurprisingly, in December 2009, Bajaj Autoannounced that it would discontinueproduction of scooters by the end of thefinancial year. The move was explained toform part of the new strategy to overtakeHonda and become the world’s leading

11 “Bajaj Auto MD Looks to Repeat Strategy”, Economic Times, February 13, 2007, available at http://www.indiacar.net/news/n50651.htm

12 “For Scooters, It’s Yesterday Once More—Almost”, June 20, 2009, available at http://business.rediff.com/report/2009/jun/20/for-scooters-its-yesterday-once-more-almost.htm


motorcycle manufacturer. Mr. Rajiv Bajajsaid, “Currently we manufacture theKristal, our only automatic scooter, insmall numbers. It does not make sense tokeep production lines running for such lowvolume models. Production of the Kristalwill be stopped by the end of this financialyear.” Giving reasons for withdrawing fromscooters, he added: “In order to become amotorcycle specialist and number one inthe world, we have to make a sacrifice ofmanufacturing both motorcycles andscooters”.13

The annual world wide sale of motorcyclesis around 30 million numbers. Honda ofJapan sells around 7 million units globally,including around 3.5 million sold by itsIndian joint venture Hero Honda MotorsLtd. Bajaj Auto sold 2.5 millionmotorcycles during 2009-10 and has a totalmanufacturing capacity of 4 million perannum. It hopes to ride on the recentsuccess of its Discover 100cc and Pulsar135cc models to double its output.

However, analysts say that to overtakeHonda might be difficult as Honda’soperations through Hero Honda are alsogrowing quite fast and, it would thereforebe extremely difficult and challenging tobridge the gap and overtake Honda.14

The Issues AheadWill Bajaj be able to overtake Honda worldwide, or at least Hero Honda Motors Ltd.in the Indian market? What should it doto achieve this goal? What are the newunforeseen forces that may impact theIndian two-wheeler industry in the comingyears? and how can Bajaj Auto anticipateand be prepared for such eventualities?Will low-cost cars affect the market fortwo-wheelers? Incidentally, Bajaj Auto toohas worked on a low-cost car along the linesof Tata Nano, drawing upon the basicplatform and components from its two- andthree-wheel vehicles. It has signed an accordwith Renault-Nissan for developing andmarketing this car in India and otheremerging economies.J

13 “Bajaj to Exit Scooter Biz”, Business Standard, December 10, 2009, http://www.business-standard.com/india/news/bajaj-to-exit-scooter-biz/379120/

14 Ibid.

75Case Study

Appendix

India’s Two-Wheeler Industry (1994-95 to 2009-10)

1994-95 528,043 1,130,248 549,940 2,208,231

1995-96 660,672 1,321,217 678,116 2,660,005

1996-97 802,266 1,400,758 762,450 2,965,474

1997-98 913,956 1,344,186 784,205 3,042,347

1998-99 1,176,779 1,396,759 829,933 3,403,471

1999-00 1,612,895 1,357,483 806,341 3,776,719

2000-01 2,033,196 1,000,672 711,648 3,745,516

2001-02 2,861,375 941,439 515,717 4,318,531

2002-03 3,757,125 868,327 428,110 5,053,562

2003-04 4,316,777 948,555 370,099 5,635,431

2004-05 5,217,996 983,097 351,169 6,552,262

2005-06 6,200,749 992,985 375,922 7,569,656

2006-07 7,099,551 976,358 393,436 8,469,345

2007-08 6,544,349 1,075,591 449,051 8,068,991

2008-09 6,806,114 1,171,663 464,067 8,441,844

2009-10 8,446,591 1,542,507 522,686 10,511,784

Note: Mopeds include step-thrus and also electric scooters/bikes from 2007-08.

Source: Society of Indian Automobile Manufacturers’ Data Compiled from Various Sources

Year Motorcycles Scooters Mopeds Total

(Sales in Nos.)

Reference # 03J-2011-02-05-02

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