Scooters Come Back

In the AGM held in August 2018, Rajiv Bajaj, the MD of Bajaj auto was subjected to the ever-present question by the shareholders. When will Bajaj scooters make a come back? This question had become a permanent fixture in the AGM’s held by the Pune based automobile maker. Every meeting, someone or the other would ask this question and Mr. Bajaj would duck or dodge the question. Not this time. This time he lost his cool and said “I will make scooters when Royal Enfield makes scooters”.

I will make Scooters when Royal Enfield makes Scooters.

Source

The less than composed outburst made headlines. We do like our punch lines don’t we? Mr. Bajaj went on to elaborate on his illustration. His point was, no one can be the best in all segments. Bajaj is the 4th largest manufacturer of the two wheelers in India. The two wheeler industry itself is a huge mix of scooters, motorbikes, sports bikes and elite high power bikes. His idea is, no one can be the champion in all the segments. OK, so does Bajaj lead in any segment? Yes, actually the three wheeler category is where Bajaj shines, the Autos. Its not the only segment; Bajaj Pulsar is a household name and one of the most selling two wheeler motorbikes in the country.

Two Wheeler Market

He also explained that the scooters first of all, are a small part of the two and three wheelers segment, secondly Honda is way ahead in the scooter game with the Honda Activa selling more than 100 thousand units a month.

So to sum up, he wasn’t interested in going into the scooter segment because:
a) He didn’t think the scooter segment was profitable enough – given that scooters sell for far less than a motorbike and that the margins are low, it seemed a low hanging fruit.
b) The scooter segment is already over crowded with Honda doing too well and TVS fighting hard to make the numbers.

Ok, now let us look at his statement. How can he say I will make scooters when Royal Enfield makes scooter? RE never made scooters, but Bajaj did, and Bajaj made great scooters. What the shareholders are asking is for a come back of the scooter. The Scooters of Bajaj are emotionally etched to the Indian psyche. A feel good factor, a nostalgia of the 90s and 80s when our fathers owned a scooter is what is making everyone ask for a scooter.

Bajaj Chetak

Emotions are not the only thing involved in the idea of bringing scooters back, of course its a huge risk. The scooters of Bajaj were of a different generation. Today’s scooters are mostly grearles automatics used by children or women who want to drive a lightweight, automatic two wheeler. Not the kind of Scooters that Bajaj made or the kind that the market wants Bajaj to bring back. Infact, except for LML in Punjab, today there are hardly any geared scooters in the Indian market today.

Aren’t there examples of old brands making a come back? The biggest example in the world is the Volkswagen Beetle. The 1938 model sold for nearly 40 before phasing out in the 70s. The model was so loved that when the company reintroduced it in 1998, it was an instant hit. It sold in the a hundred thousand units annually for nearly 10 years! Of course the numbers started falling again, and VW introduced a newer, more masculine version in 2011. The car has been out of fashion in 2019, but was one of the greatest comeback stories of the century.

Beetle 1998

Talking more closer to home, Royal Enfield itself is a comeback story. The chivalrous motorbike maker typically made motorbikes for the military and paramilitary forces, and very few owned the bike. It wasn’t till the 2000s that the bike started making a comeback. People wanted to own the Bullet, look tough and be part of the movement. The movement is still going strong and RE is making quite a buck.

So why can’t Bajaj bring back scooters? It’s not like Bajaj didn’t try its hand at selling the new generation gearless scooters. There was a model called Bajaj Kristal that was released in the 2000s. This model failed and with that Bajaj ended it’s venture into scooters. Which is really really sad.

Red Ocean

The fear of entering an already competitive market is not a sign of a good business. Its not just being risk averse, but its just throwing in your towel without getting into the ring.

The best example for this is the entry of TVS in the three wheeler market. The auto rickshaw market. Bajaj has historically owned this place. Even today Bajaj owns more than 50% of the market share in this segment. Yet TVS ventured into this market in the late 2000s and has since been chewing away market share. That is a sign of positivity and intent from a business that we as investors and shareholder look for. Why can’t Bajaj take cue from this move by TVS and take a change at entering the scooter market?

Three wheeler Market

The entry of TVS is not the only example of a new player entering an already saturated market. In the second decade of 2000, electric three wheelers have also come into the forray, and as a pleasant and path breaking news, the sales of electric three wheelers has for the first time surpassed the sales of petrol/diesel/CNG/LPG vehicles.

TVS Three Wheelers

As per data shared by the Society of Manufacturers of Electric Vehicles (SMEV), the apex lobby body for electric vehicles, sales of electric three-wheeler segment grew 21 percent during 2018-19 to 630,000 as against 520,000 sold in 2017-18. In 2018, sales of petrol, diesel and CNG-powered passenger three wheelers grew by just 10.6 percent to 572,400 units, compared to 517,400 units sold in 2017-18, according to data shared by the Society of Indian Automobile Manufacturers.

King of the Hill

As we already saw, Bajaj is not the king of the hill. It comes off as a distant 4th when it comes to manufacturing and sales of two wheelers in the country. The bike that is on top of things is the Pulsar, but even that has stiff competition with other street bikes like the TVS Apache and Honda CBR. So where then does Bajaj see the money to be so adamantly stuck only in the motorbike segment of this huge market?

The partnerships. KTM has been a famous name in the domestic motorbike segment. KTM RC 200 and KTM 390 have been selling hot on the streets of the bigger and smaller cities of India. KTM has a manufacturing and marketing partnership with Bajaj. Hence is eating off a fair slice of action. KTM is not the only partnership game of Bajaj; not so long back they had partnership with Kawasaki, and the most recent partnership they’ve announced is with Triumph. Do these partnerships mean Bajaj can make enough money and move up in the market share? Not likely.

Partnerships

Of the top 10 bike awaited bike launches in 2019-20 FY, there is just 1 Bajaj bike – the Bajaj Dominor 400, and 2 other bikes from partnerships. Yamaha is planning to launch 3, Hero, Aprilia and RE are planning to launch 1 bike each. So clearly, Bajaj isn’t really pushing too hard to make it to the top.

So what do we have now?

  1. Bajaj isn’t the best in motorbikes and isn’t likely to be anytime soon
  2. Entering an already saturated market is not unheard off
  3. Brands that have had a special place have made successful comebacks

Why after all this does Bajaj want to stay out of the scooter segment? Because its too little money? or because its too much work? or is it because it’s just not fashionable anymore? Its here that we must recall that Rajiv Bajaj is not the one who made the company.

This reminds me of a line from Psalm 37 –  The righteous shall inherit the land and dwell upon it forever. Unrelated question: Who’s the righteous one here? Rajiv Bajaj or the Scooter that we loved so much?

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