Impact of banning Rs. 500 and Rs.1000 notes on 2 wheelers market

This is the first day since Prime minister Mr. Modi banned Rs 500 & 1000Rs notes since yesterday night 12 am. The two Wheeler market is heavily dependent on cash because of its low value transactions averaging 40-60k for new bikes and 25-40k for used bikes. Transactions primarily takes place sin cash in 2 wheeler market.

Out of this also the worst impact is on used 2 wheeler segment as it is mostly cash and practically next to nil finance for used bikes across India. Dealer usually take cash and do not deposit in bank as they rotate it to buy more vehicles and bear the expenses of running the shops.

Large part of used 2w dealers inventory are cash purchases . The customers coming to the market usually given some kind of token amount to book the bike or they full in cash and take away the vehicle. If Dealers accept the rs 500 & 1000Rs note they will have to deposit it in bank and will be liable to pay the VAT etc. Most of these dealer are just roadside mechanics and are not aware of the nuances of VAT and taxes etc. Such dealers will however will tend to lie low or just be satisfied with the token amount received for the time being and will keep the stock on their shops till the time they receive their full payment.

Since most of the customers give small amount of token like 500,1000 Rs or multiples of thousands they have not gone to even to see the bikes in market. Overall footfall in the market has been very low across country today. Used bike market business has taken a significant hit today.

New bike sales also has been impacted heavily today because of the booking amounts are small in multiples of thousands. However there is financing available in case of new bikes o those customer wont be affected that much.In fact the more money in market will increase the volumes of new bike finance.

In case where the customer is exchanging his bike for a new one may be impacted a little. Because the exchange bike are usually bought by used 2w dealers and they pay to new bike showrooms. This process will be a little slow as the used bike dealer wont be having enough cash to purchase exchange bikes. New bike showrooms will have to keep the exchange bike at their premises unless they receive the full payment from used bike dealers.

Once the restriction on cash is lifted the 2 wheeler sales will pick up again as the cash flows in the market with new 500Rs & 2000rs Notes.

Dealers who go overboard and deposit the excess cash into their bank accounts will find it difficult to file the It returns if they file lesser income in next financial year though.

Ban on Rs. 500, 1,000 notes to impact 2-wheelers, SUVs, premium vehicle sales
This change will have few long term impact positive impacts on the 2w market though::

Long term Impacts-

A lot of transaction sin which were all in cash earlier will be highlighted in first month of this move. However these will again go offline in sometime.

This brief period of cash crunch will bring the practice of ban deposit for a lot dealers. Specially used bike dealer who didn’t have a bank account earlier will open up account. Things will look more professional for a short period.

Dealers and market will be more open to try out the finance on new bikes and used bike both. New NBCFs may come to tap the opportunity in the market.

Excess cash flow will make it easy to find loan to purchase and to run business as well. Organized players will find it easier to operate.