American Scooterist
Issue #51

Editor’s Notes: Farewell Chetak - Dave McCabe

Although many of us knew about the decline in the Indian scooter market, I doubt few would have guessed that Bajaj Auto Limited—recently the world's largest scooter manufacturer—would completely stop production of geared scooters.

In January 2006, assembly of the Chetak and Legend scooters came to a halt, ending a staggering production run of Vespa-derived scooters. At its peak in 1997, Bajaj Auto produced over 835,000 scooters. For perspective, it took Piaggio almost 10 years of manufacturing (in plants all over the world) to reach this number by 1955.

What was particularly sad was that the latest Bajaj scooter (the models with the new four-stroke engine) may have been the world's most perfect vehicle. Even though it was limited in performance potential, the Bajaj Chetak had evolved in a unique and important direction from its origins as an early Vespa Super. The present-day Bajaj was a modern scooter that kept design firmly rooted in utility. Many of the features that enthusiasts found appealing in the early Vespas were retained. It was a monocoque metal-bodied machine—simple, elegant but robust. The tires were both the same size and they retained the hub mounting system for easy changing. The new engine was reliable and easy to work on. With judicious use of the throttle, it gave remarkably good fuel economy. Above all, the new four-stroke engine was finally a traditional scooter that was reasonably clean running. One could be a passionate scooterist without the guilt of two-stroke pollution. I never owned one, but this is the bike I'd want if the world goes to hell—reliable, economical and easy to fix with cheap parts. The last part of that equation is now not so certain.

From the perspective of someone in the U.S., the cessation of production of the Chetak seemed like a completely disastrous mistake. Scooter sales are booming in this country, and the numbers only go up as gas increases in cost. It seemed that Bajaj should have been making more scooters, not getting out of the business altogether.

So what happened? We can't just say that motorcycles are more popular in India and thus fully explain the demise of Bajaj's flagship scooter. I anxiously awaited the arrival of Bajaj's annual 2005-2006 corporate report. Surely it would provide a detailed explanation for such a significant decision.

When the report arrived I was disappointed. In the entire 151-page document here is all that was mentioned: “For a company of Bajaj Auto's size, it made little business sense to continue with the production of a shrinking volume of traditional geared scooters, which, in any case, accounted for just 3 percent of the two-wheeler market. Thus, the company discontinued manufacturing geared scooters during the year.”

It may come as a shock, but while the U.S. was seeing increased sales, Bajaj Auto and most of India had already written off traditional geared scooters a few years ago.

A look at the sales numbers within Bajaj Auto and the larger Indian two-wheeler market provides perspective on the enormity of the change in the average Indian citizen’s preferred mode of transportation.

We hear stories of the economic revolution that is happening in China. It’s not in the news as much, but the same thing is taking place in India. In early 1996, I experienced the economic revolution firsthand. I traveled around Northern India, much of the way by car. A number of times I got stuck in a long procession of Tata trucks. The Tata truck was a medium-sized (non-containerized) goods hauler based on a Mercedes design. The same truck model appeared to be all over India. In the opposite lane, coming at me, I would watch another seemingly-endless line of the same trucks pass by, all hauling material from one city to another. If the car windows were open, I’d be hit by the blast of the diesel exhaust as each truck passed. The roads were often so packed with loaded-down trucks it felt apocalyptic, but it did give me a firsthand impression of the scale of the growth of India’s economy.

Along with this new level of growth came new prosperity and changing consumer patterns. In Europe in the Fifties, the “next step up” for a young scooter-owning family was a micro car. In India there is still a big gap between owning a scooter and affording a car. There, the perceived “next step up” from a scooter is a motorcycle, and in the Nineties, motorcycle sales grew exponentially.

The consensus was that motorcycles would increase as a percentage of the total two-wheeler market as scooter sales stabilized or grew at a much smaller pace. No one, not even the manufacturers, predicted the complete collapse of the scooter market. But in 2000, a confluence of events precipitated the end for geared scooters in India.

First and foremost, 2000 was the year that the Indian government imposed strict new emissions standards. Believe it or not, these standards were some of the toughest in the world. It was anticipated by some that two-strokes would not be able to conform to them. This was the impetus behind Bajaj Auto’s massive investment in engineering a brand new geared four-stroke engine made specifically for the traditional metal-bodied scooter.

Well before April 2000, Bajaj Auto had both two-stroke and four-stroke scooter models ready for the new emissions standards. Unfortunately, both variations were more expensive to manufacture. Catalytic converters use expensive alloys, and the four-stroke scooter used a modified body and an engine with more parts. Most motorcycle models, on the other hand, were already four-stroke and didn’t require catalytic converters. The public had already made the adjustment to paying more for the new four-stroke motorcycles.

One additional little-recognized factor was a nationwide standardization of sales tax rates in 2000. Scooter sales were primarily in urban areas in northern and eastern India. In these areas, local sales taxes ranged between 4 and 6 percent for all two-wheeled vehicles. In April and May of 2000, all states agreed to impose a uniform countrywide rate of 12 percent. The stiff sales tax hike had a disproportionate impact on areas where more scooters were sold.

The traditional geared scooter market had grown fiercely competitive. The two players were LML and Bajaj Auto. LML, making a scooter virtually identical to a newer-PX design, was a smaller but substantial competitor to Bajaj Auto. Furthermore, due to the inherent robust characteristics of the original design, both companies were also competing against a saturated used scooter market.

For both companies, competition in a soft market came down to price. With already low margins on geared scooters, both companies had to focus on lowering their prices to keep market share.

The downward price pressure came just as various vehicle improvements, catalytic converters and the new sales tax raised the cost of a typical scooter from around $600 to $675. The combination of price increases in an already weak market resulted in a 38 percent drop in scooter sales for Bajaj Auto, an unprecedented number for a company used to double-digit sales growth. A 38 percent decline was 304,000 fewer scooters from the fiscal years of 1999-00 to 2000-01! Needless to say, it put the company into crisis mode, and the focus of the response was a further embrace of motorcycles. Bajaj Auto worked to get its costs back down to around $600, but in so doing, cut into already thin profit margins.

Bajaj Auto may have been taken by surprise with the success of LML’s reed-valve five-port (on the cylinder) engine. Over here, we see this engine as improving performance, but in India, the design change was all about cheaply achieving better fuel economy and cleaner emissions. It worked and cost substantially less than Bajaj Auto’s four-stroke engine. Bajaj Auto responded with its own model, the Bravo. It helped to temporarily prop up sales, but it also competed against their own more-expensive four-stroke scooter.

Bajaj Auto now had to produce two scooters with completely different engines and, since the Bajaj four stroke engine had a different shape, a different body as well. Given the rapidly declining numbers, it was a frustrating complication.

In the end, with annual geared scooter production at around 70,000, Bajaj Auto pulled the plug. You would think that 70,000 scooters would be nothing to sniff at, but with annual motorcycle production now at well over 1,400,000 units, Bajaj Auto needed to focus on where the money was. It made little sense to tie up a production line producing scooters that offered much smaller margins when there was immediate demand for more motorcycles.

When scooter sales collapsed, the real loser was LML. LML got into the motorcycle game very late and failed to establish any traction with their new motorcycle models. As much as they tried to change, they remained a one-product company with the wrong product.

Ironically, if Bajaj Auto had foreseen LML’s demise, they might have kept their scooters in production. One hopes that Bajaj Auto or LML will at least license production to a smaller factory. In a few years, there may be a motorcycle hangover. People will remember that scooters are cheaper to maintain and more fun to ride.