The raising interest rates and spiking inflation has begin to show its impact on auto industry. Interest rates which is at six-year high and inflation which is at its 13 year best has left little money in the hands of buyers. Adding to this is the surge in fuel prices which results in less demand for two wheelers According to Shinji Aoyama, president and CEO of Honda Motorcycles and Scooters India(HMSI) “Total production exceeds demand”. The total production capacity of Indian two wheeler manufacturers is around 1.25crores units but the demand for two wheelers in the domestic market is around 70lakh units only. Other than Bajaj and TVS none of the other players export bikes to other markets in a major way. “We should expect some single-digit growth now.” Honda has sold around 9 lkah units last year and currently has a capacity of building one million units per annum. In the month of March 2008, Honda piped TVS to clinch the third position and its recent offering Aviator is received well by the consumers. Honda plans to introduce a new 125cc bike called CBF stunner in next two months. Honda has been considering a second factory in anticipation of demand but the sales were not impreesive to build a second factory and has put it on the back burner saying it could hike capacity at its current factory if the demand arises. It is important to recall that few months back Hero Honda made a similar announcement but finally started building the factory soon after that.