Honda bets on diesel cars, localisation

Written by Shweta Bhanot Mehrotra | Mumbai | Updated: Dec 26 2012, 08:26am hrs
Having ended its partnerships with Indian firms for two-wheelers in 2011 and cars in August this year Japanese auto giant Honda Motor is working on a twin strategy for the Indian market.

It plans to capture the top slot in the two-wheeler segment, where it is present through Honda Motorcycle & Scooter India (HMSI), and replicate the same success in cars by foraying into diesel engines. While the companys growth in the two-wheeler space has been impressive since the break-up with the Hero Group, the company saw its sales plummeting in cars mainly because it does not offer a diesel variant. Also on the cards is a higher level of localisation to bring about competitive pricing.

We want Honda to become a household name for cars, said Jnaneswar Sen, senior vice-president, sales and marketing, Honda Cars India (HCIL). The company will be introducing its first diesel model, Honda Brio Amaze, in India in the first half of 2013. Amaze is going to be the first diesel car from Honda in India and will be launched in the next financial year, said Sen, adding the new 1.5L iDTEC engine for the Honda Amaze had been designed for the Indian market. Our future product portfolio is being aligned with Indian needs with high levels of localisation. The current City and more recently the Honda Brio model, both have been developed keeping India as the lead country of development.

For Honda, which in August bought out minority partner Siddharth Shriram-led Usha Internationals stake in its car venture, focus on the car business is important as sales have been floundering for the past two years. In FY12, sales fell 8.47% to 54,427 units, when the overall passenger car sales were up 2.19% to 2.01 million.

In FY11, volumes were down 4% to 59,463 units. Many reasons have been attributed to Honda's problems and failure to secure a top position, despite being present in India for the last 16 years. Premium pricing issues were solved in 2011 and 2012 when increased local sourcing led to price cuts of up to R1.5 lakh for Jazz and City models, bringing them closer to the competition from Maruti Suzuki and Hyundai. The second issue was the delayed foray into the small car segment, something that has been addressed with the launch of the Brio in September 2011.

The last and most pertinent issue was the lack of diesel car models, which has been the primary reason for bringing all its models (Accord, CR-V, City) down from being segment leaders to laggards in the competition. The Indian car market sharply tilted towards diesel cars after petrol prices started going up from 2010, widening the gap with the diesel price by over R25 a litre. Today, diesel cars account for 58% of new car sales, up from around 35% two years back.

The company was also unfortunate in some ways volumes in 2011 were also down because production was severely impaired due to shortage of components following the tsunami in Japan (March) and floods in Thailand (September).

"Honda has the weakest supplier base in India compared to its peers, said VG Ramakrishnan, managing director, Frost & Sullivan. Honda will have to really gear up on this front if it wants to be seen among significant players in the Indian industry with high localisation and competitively priced products, Ramakrishnan added.

Honda is now planning big. Capacity at its first Greater Noida facility has been increased to 1.2 lakh units per year on expected demand for hatchbacks and diesel models, though utilisation is about 70%. A second site is ready at Tapukara, Rajasthan, where today the new diesel plant and component hub is being built. This site also has space to add car assembly lines when demand finally arrives at the door. To break even earlier, this diesel plant will drive Honda's small diesel car exports as well.

However, in the two-wheeler business, the company's growth has been impressive, which it plans to consolidate further. S Guleria, vice president, sales and marketing, HMSI, said, With the new technical centre, Honda will be faster in introducing new models with greater India specific technology and designing, leading to quality products at affordable prices."

The company's FY12 sales were up 28.68% to 1.99 million units, outperforming the growth of the two-wheeler industry, which grew 14.16% to 13.43 million. Erstwhile partner Hero MotoCorp's sales grew 15.18% to 6.06 million during the same period.