Success & the City

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Updated: April 11, 2015 12:34:13 AM

The fourth-generation Honda City has become the fastest mid-size sedan in India to achieve 1 lakh unit sales. So, what has worked for the car that built Honda in India

These are three of the 1 lakh reasons Indians have apparently given to buy the fourth-generation Honda City.These are three of the 1 lakh reasons Indians have apparently given to buy the fourth-generation Honda City.

“City Honda, the car I want to buy for my wedding is City Honda,” says Vineet Gupta, a 28-year-old businessman from Patiala. “You mean the Honda City,” the loan officer at a bank asks. “Yes, ity Honda,” answers Gupta.

“The entry-level Elantra fits my budget, but I guess the top-end City is a better buy,” says Saurav Kumar, a 34-year-old IT professional from Chennai.

“Simply because the City will look good in the parking lot of my villa,” adds 55-year-old Rajendra Verma from Gurgaon.

These are three of the 1 lakh reasons Indians have apparently given to buy the fourth-generation Honda City. (Since its launch last year in January, the car has registered 1,01,299 units of cumulative sales. In March, it sold the highest, 9,777 units.)


“The City brand has been the face of Honda in India, enjoying strong leadership and popularity in its segment ever since its launch. While retaining the traditional set of sedan buyers, the new City has been able to attract a large number of young buyers. In fact, 30% of the customers have bought the City as their first car,” says Jnaneswar Sen, senior vice-president, Marketing & Sales, Honda Cars India.

The fourth-generation City has been such a strong performer that when the company temporarily stopped its production in August—that month Honda was shifting the production of the City from its Greater Noida plant to Tapukara in Rajasthan, to produce more cars—the segment fell over 50%. “The City has a huge following of satisfied customers because it is an elegant, spacious, peppy and economical car. It also enjoys a good resale value. It is hard for City customers to consider other mid-size sedans,” argues auto expert Murad Ali Baig.

Harish Bijoor, the brand-strategy specialist & CEO, Harish Bijoor Consults, believes that the City is gradually emerging as the first car of choice for young Indian executives. “Youngsters in urban India today aspire their first car to be a sedan, and an elegant sedan such as the City fits the bill. The City is not just a product, it’s an aspirational brand.”

In fact, in the first month itself, the fourth-generation City was able to dislodge Hyundai Verna, which was reigning over the segment for two consecutive years. The only month it faced competition was in October, when Maruti—which had earlier failed with the Baleno and the SX4—re-entered the segment with the Ciaz, and the car sold more than the City in that month. “Initial sales cannot be taken as a trend. A new product draws volumes because of the novelty factor it enjoys but, beyond that, it will succeed only if it has a value-proposition attached to it,” says Abdul Majeed, leader, Automotive, PwC India.

Born in 1996 in Thailand, Honda started producing the first-generation City in India in 1997. Sales began in January 1998. The second-generation model was launched in 2003, the third in 2008 and the fourth in January 2014. Since 1998, a total of 5.3 lakh units of the City have been sold in India.

Its biggest challenger has been the Hyundai Verna. When the Fluidic Verna was launched in 2011, it swept the competition, the City included.

The reason was the Verna embodied a new, striking design language and came with a powerful and fuel-efficient diesel engine. The City was powered only by petrol, and the petrol/diesel fuel price gap was substantial then. The City needed the i-DTEC diesel engine, which the fourth-generation model got.

“During the first three months of the launch, 70% of the fourth-generation City’s sales came from diesel, but then the sales started levelling out. October onwards, with reducing petrol prices, the petrol and diesel sales ratio has been 50:50,” Sen adds.

The Ciaz, since its launch, has sold 32,294 units. During the same period the Verna has sold 15,857 units, while the City has led with 46,937 units. This, despite the fact that Honda’s sales and distribution network, at 232 touch-points in 152 cities, doesn’t really compare with Maruti’s 1,500-plus and Hyundai’s 415-plus.

“Even though our sales touch-points are far lesser, but because the City is an aspirational brand, we have found that the car attracts customers nevertheless. Last year our dealership expansion was mostly in small towns and we found that the City saw a rising demand at those dealerships too,” Sen adds.

Hyundai, hoping to regain its leadership position in the mid-size segment, launched the new 4S Fluidic Verna in February. The car’s monthly sales, which had gone down to a mere 1,620 units in January, rose to 3,400 units in March. However, “it will be difficult even for the new Verna to regain its position. One, it is bit costlier of the three. Two, the competition is far more intense now,” believes Gaurav Vangaal, analyst, IHS Automotive.

If the Verna successfully challenged the City in 2011, today that place has been taken by the Ciaz. Maruti has worked hard. The company readied a special sales team for the Ciaz, who have been trained to engage with customers in this segment and have been asked not to aggressively follow-up, which can turn away premium customers. Maruti also roped in actor Ranveer Singh as the brand ambassador for the Ciaz.

Honda believes the City doesn’t need such branding initiatives. Sen says, “The City is such a strong and aspirational brand that it has sustained its sales only on the positive word of mouth and its brand value.” Even though the City’s production is going full steam, the demand is so strong that the sedan still has a waiting period of about two months for some models. “Over the generations, we have raised the bar of the City, and the car has remained the benchmark in the segment,” adds Sen.

Analysts are of the view that, despite initial gains, the Ciaz may not be able to lead the segment. “The sales of the Ciaz should settle down at about 4,000 units a month. Reaching the sales levels of the City is expecting too much from the Ciaz,” adds an industry expert, who wished not to be named.

“The Ciaz can emerge as a serious challenger only if it sustains the positive word of mouth it has managed to until now. It is an aspirational brand for Maruti loyalists, the next step should be being an aspirational brand for all small car buyers,” adds Majeed.

However, Maruti is cautiously optimistic. A senior Maruti executive says that the company’s efforts are definitely towards leading the segment.

“The Ciaz has the potential. Maruti was known as a small car player but the success of the Ciaz has proved that, on brand equity also, we are evolving gradually but surely.”

The City, over time, has made its presence felt even in the markets it was not initially designed for. Today, while India is the largest market for the City, the car is being manufactured in Japan, Thailand, the Philippines, Malaysia, China, Taiwan, Vietnam and Brazil. From essentially an Asian model in the first-generation, the City’s sale started to expand from second-generation to other countries such as China (China is a separate business region than Asia and Oceania for Honda). The third-generation of the City was sold in more than 50 countries. The current, fourth-generation model is sold in over 60 countries.

* Honda Motor also sold a car named the “City” in the 1980s in Japan, but that was not the “Honda City” we know today.

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