Hero joins others to offer December discounts as inventories pile up

Written by Roudra Bhattacharya | New Delhi | Updated: Dec 25 2013, 17:57pm hrs
HeroHero is expected to contribute 60% of the loyalty bonus offer (PTI)
High inventories after the festival season and low consumer demand in the current month have forced the two-wheeler market leader by volumes, Hero MotoCorp, to offer discounts for the first time in several years. The company, which has long maintained that its policy is not to offer discounts unlike its rivals, is now offering a loyalty bonus of Rs 1,000 on its entire bike and scooter range for existing Hero owners. Loyalty bonus is a form of cash discount where the existing Hero bike owners would get a discount if they buy a newer product.

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Multiple Hero dealers told FE that retail volumes have taken a sharp dip in December, after strong festive season sales in October and November where it sold a record 1.2 million units. In fact, inventory levels today have climbed to five weeks and in some extreme cases even six weeks, from a three-week normal.

The company has been caught in a tricky situation as it had pushed huge volumes to dealers in October and November anticipating the festive rush. While sales were good then, stocks are still lying with dealers and with sales being tepid in the current month, Hero needs to dispose of them.

Sales in December are generally low, as customers dont want products with a manufacturing date of the previous year in a new calendar year.

When contacted, a company spokesperson said the company keeps running activities targeted at its customers, such as referral programmes for Goodlife members and for customers coming for service at its authorised channels. The current initiative of Rs 1,000 Loyalty Bonus is in line with these programmes which are applicable only for our existing customers. It added that Finance, exchange and loyalty initiatives are not discounts but are efforts aimed at brand building and relationship building.

Hero, which has traditionally resorted to marketing campaigns like its recent five-year warranty programme to push sales, is expected to contribute 60% of the loyalty bonus offer. The rest will be borne by the dealers, who feel that their margins are now under tremendous pressure. In comparison, rival Honda is offering a Rs 2,000 exchange bonus on the Dream Neo and Yuga, besides a lower 2.99% interest rate.

I have a margin of Rs 1,150 on the Splendor, which is the biggest chunk of my sales. Now, I have to fork out a further Rs 400 from this margin towards the loyalty bonus. The last time I remember such a discount from Hero was five years back. Inventory is so high that theres no space to even unload trucks, a major North Indian Hero dealer said.

Additionally, the company is offering financing schemes like low down payment of Rs 5,555, both through a tie-up with HDFC and its captive finance arm.

An analyst with a broking firm said, The situation is very tough for all two-wheeler and car makers. Dealer inventories, which are normally at three or four weeks, have climbed to five or six weeks. The situation is same for most companies.

Hero MotoCorp has seen strong festive season sales this year, with October retail volumes being the highest ever for any month. High demand from the rural market following a normal monsoon helped the company despatch 18% more vehicles in October at 625,000 units, while November despatches rose 5.6% to 530,000 units.

Hero, which has a 41% market share across two-wheelers, saw its total volumes for April-November FY14 rise 3.8% to 4.0.5 million units. In the same period, the two-wheeler industry saw a 5.8% rise to 9.77 million units, driven by high scooter demand, while rival Bajaj saw a 14% drop to 1.47 million units and Honda rose 30% to 2.26 million units.

On Tuesday, the Hero MotoCorp share on the BSE closed down 1.39% at Rs 2,132.85. The benchmark Sensex was down 0.32%.