Effect of Macro-Economic Factors on Demand for Two-Wheelers in India

Abstract

The traditional approach for forecasting sales demand in the two-wheeler industry in India primarily relies on naïve models with some overlay of judgmental forecasting methods. The empirical data on sales for the last 30 years shows a high level of variability on a monthly, quarterly and annual basis and the naïve traditional forecasting approaches are unable to provide reasonable levels of forecast accuracy. This paper aims to determine the coincident and leading macroeconomic and other external factors influencing annual two-wheeler demand. This can help manufacturers better anticipate demand trends over a 1-3 year horizon and install adequate capacities and plan production levels. The research design involved collection of longitudinal data for different economic and demographic indicators. These covered indicators affecting (i) aggregate demand (population, urbanization level, per-capita income), (ii) affordability (petrol price, interest rates, household wealth, inflation) and (iii) impulse purchase (rainfall level, festival season). Two regression models were derived using statistical analysis of the collected data to forecast sales. These models showed that sales of two-wheelers increase with (a) higher per capita income, (b) increase in pump petrol price, (c) increase in price of bullion gold and (d) lower consumer finance rates. The difference in sales during high and low monsoon years was found to be not statistically significant (at α =0.05) and festival season sales were found to be higher than rest of year sales with a factor of between 3.31% and 10.26% (confidence interval 95%).