The rise of the machines

Today’s global motorcycle market is big business, with annual growth of around 7%, and it is a market that continues to grow despite the economic recession, which has seen others either remain static or go into decline.

However, the growth markets for motorcycles have moved from the west to the east. Now India, Indonesia and Thailand are the big producing countries and are continuing to trend upwards, as users in these markets replace their bikes every three to four years.

In the more mature markets of Europe and North America, where bikes are used predominantly for leisure rather than personal mobility, we see users holding on to their machines for much longer and the bike population is generally aging.

Indeed, Anyone who loves motorcycles will remember the iconic scenes from 2003 of Arnold Schwarzenegger jumping on to a legendary Harley Davidson ‘Fat Boy FLSTF’ in the Terminator movie. Chances are that if the film was reshot today he would be able to ride off on exactly the same machine.

From humble beginnings

Motorcycle usage has certainly come a long way from its humble beginnings in 1894, when Hildebrand and Wolfmuller produced the first motorcycle for public purchase.

Around the turn of the century famous names including Royal Enfield, Triumph, Ducati and Harley Davidson started to gain popularity and in 1902-1903 each produced around 500 motorcycles per year. By 1913 Harley Davidson were already producing 32,000 bikes annually and in 2011 the company shipped over 233,000 motorcycles to its dealers and distributors.

However, these big names of the past have now moved from global mass market appeal to more niche regional portfolios, focusing on a specific segment of consumers. They are still growing in some cases but in comparison to today’s big producers: Honda, Yamaha, Hero and Bajaj, they are small.

2011 OEM Motorcycle sales

The leading OEM is currently Honda, which is believed to hold around a 40% share of the market outside of China. Yamaha are second with Hero MotoCorp third.

In 2012 we estimate there to be around 350 million motorcycle users worldwide and, with growth annually for new users running at around 40 million, we can expect half a billion users by 2015.

Going with the growth

Most of the growth comes from the markets in Asia Pacific where the rapid urbanisation and industrialisation are the main drivers for motorcycle use and, as traffic congestion worsens, two-wheelers have become a popular and inexpensive mode of everyday transport.

As you might expect, the OEMs have moved their manufacturing facilities closer to these expanding markets, which account for around 80% of new motorcycles.

India is seen as by far the biggest opportunity and is fast becoming ‘motorcycle central’ as the main hub for manufacturing and production. The global operations of the Japanese motorcycle manufacturers continue to focus on overseas production, whether as independent operations, joint ventures or technical tie-ups.

Overseas production brings significant benefits to local economies and host countries, including employment, industrial development, and technology transfer and India today accounts for approximately 30% of new four-stroke motorcycle production.

The current slowing of the economy in Asia is seen as no more than a blip, and motorcycle use is expected to continue to grow steadily.

New motorcycle capacity increases are announced almost on a quarterly basis by all the major players, with India and Indonesia the main targets. But, we should not ignore the capacity announcements in countries like Brazil and Nigeria that, although small today, are likely to become the larger markets of the future.

Indian market

The Indian two-wheeler industry recorded sales volumes of 13.4 million units in 2011-12, a growth of 14% over the previous year. The share of the scooters segment increased to 19.1% in 2011-12 from 17.6% in 2010-11. Over the medium term (by 2016-17), the Indian two-wheeler industry is expected to reach 24-26 million units (domestic + exports).

India domestic automotive share for 2010-11

The leading Indian OEM is Hero MotoCorp, with estimated sales of 5.7 million units. In second place Bajaj Auto has sales of around 5 million units and Honda’s wholly owned Indian subsidiary, HMSI, is now in third place, at the expense of TVS Motors.

Honda recently ended its 26 year joint venture with Hero MotoCorp, which had prevented the OEM from directly competing with Hero Honda vehicles. HMSI is now forecasting around 2.5 million sales during 2012.

These top three producers account for approximately 80% of the Indian market and motorcycles account for around three quarters of all vehicles produced in India.

Brazil motorcycle registrations

Indonesian market

Indonesia is the world’s third largest motorcycle market behind China and India. In 2011 the total market size reached just over 8 million units, and through 2012 it is expected to grow to approximately 8.7 million units.

Honda and Yamaha are the market leaders in a market that is expected to reach saturation by 2015.

The motorcycle ownership ratio in Indonesia is two people for every motorcycle although demand for automobiles is growing as the country’s economy expands.

Because, as reported, most buyers in Indonesia purchase vehicles through auto loans or via finance companies, the recent policies launched by the Indonesian Central Bank that restrict loans are having an impact on motorcycle sales.

Indonesia is the world’s third largest motorcycle market behind China and India.

Despite this picture OEMs are investing in the region. Honda Motor Co plans to open its fourth plant in the country, which will increase its total capacity to 5.3 million units. Yamaha motorcycles reached a capacity of 3.7 million and Kawasaki also plans to expand its production capacity by 300,000 units to 450,000 units / year.

With 4.27 million sales in 2011 Honda is the market leader – a position they have almost exclusively held since they entered the market in 1971. Yamaha, which posts half its global sales in Indonesia, ranks second with a 39% share having sold 3.13 million vehicles in 2011.

China

The Chinese two-wheeler industry recorded sales volumes of  around 25 million during 2011 and has the largest domestic market.

According to the China Association of Automobile Manufacturers (CAAM) this equates to around 39% of the total global motorcycles and scooters in production.

In 2011 exports exceeded 10 million units from 104 manufacturers. However, OEMs are gradually consolidating as they work to compete with traditional markets, expand their range and increase exports. Today some 13 companies account for around 60% of production in China.

As China becomes more environmentally conscious the motorcycle market has been impacted by the rules introduced in 190 Chinese cities and towns banning the use of petrol driven bikes. China is also keen to promote electric bikes and scooters, and more than 200 million are already on the roads.

These factors have resulted in sales output figures falling to a six year low, and China’s number one slot in the market is now threatened by India. Although the total motorcycle market maintained a growth rate of 8%, profits are estimated to have dropped by about 19%.

Brazil

The Brazilian market is the largest market in Latin America with just over 2 million registrations during 2011. Honda has around 80% market share with Yamaha second with 10%.

Recent capacity announcements for India

Rest of the world

It’s not all good news for the motorcycle sector as regional markets in Europe have shown a decline moving from 2.7 million sales in 2008 to about 1.7 million in 2011. The North American market remains static with only Harley Davidson bucking the trend.

In the short term, as inflation soars and economies falter, the motorcycle industry is showing a few signs of a slow down. In our view 2012 and perhaps 2013 will show a steadying of growth but, if we look further into the future, the long-term fundamental growth drivers in Asia Pacific of steady GDP growth, favourable demographic profiles, under developed public transport systems and cheaper ownership costs on a relative basis would appear to hold firm.

There seems no doubt that in the motorcycle sector the ‘rise of the machines’ will continue and shows no signs of abatement.

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