Insurance costs hit two-wheeler sales.

two wheeler

Two-wheeler sales this festive season have been disappointing, say dealers and manufacturers, as higher insurance premiums, rising fuel costs and poor market sentiment have led people to delay or drop their plans to purchase a motorcycle or scooter.

Dealers are staring at large inventories built-up ahead of the festivals, as they apprehend a sharp decline in demand compared with last year’s festive season. “Market sentiment is poor and stocks are huge,” said Nikunj Sanghi, director, Federation of Automotive Dealers.

“We are seeing a sales decline of 10-15% this festive season from last year with some dealers in eastern India reporting a 50% decline in sales during this season.” Since the last week of August, there have been more than four instances where the cost of insurance has changed, a senior executive at a leading Indian two wheeler maker said.

“Clearly, that has led to uncertainty and hence deferral in the purchase. Already there were economic headwinds which had impacted growth in the segment and the insurance cost spike only added to the slowdown,” added the executive.

The Insurance Regulatory and Development Authority of India earlier this year made five-year third-party insurance cover mandatory for all new two-wheeler owners. The premium for the five-year term must be paid upfront, at the time of purchase. A five-year personal accident cover of Rs 15 lakh was also made compulsory but, after a court order, the regulator reduced the tenure to one year.

The increase in compulsory minimum personal accident cover to Rs 15 lakh from the previous Rs 1 lakh pushed the premium up to Rs 750 per year from Rs 50. The premium for third-party cover to be paid at the time of purchase on two-wheelers exceeding 350cc has gone up to Rs 13,034 for five years from Rs 2,323 for one year, a more than five and-a-half-time increase in upfront cost.

According to Sanghi, insurance and registration costs are not financed by most lenders. This increases the down payment, or the amount the buyer has to pay from his pocket at the time of making the purchase. Many potential buyers who could just afford the earlier down payment have been priced out of the market.

The crash in the stock market is also a factor, Sanghi said. Middle-class consumers who had invested through systematic investment plans and were planning to redeem that to fund vehicle purchases, are in a loss due to the decline in stock prices, he added. Dealers said if they are unable to move the built-up stock, they may have to resort to deeper discounts post festive season.
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