Construction of second plant on the anvil

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New Delhi/Chennai, Dec. 19

Laying to rest months of speculation about its plans to enter the small car segment in India, Honda Motor Company has announced that it would introduce a small-size vehicle in India and also construct a second automobile plant.

Honda is targeting production and selling of more than 1,50,000 units of automobiles in India by 2010 end, Mr Takeo Fukui, President and CEO, Honda Motors Company, said in his year-end address in Tokyo on Tuesday.

Market analysts point out that Honda in the past evaluated the possibility of introducing its compact cars - the Jazz or the Fit - in the Indian market. However, analysts add that given the high costs it may not be possible to introduce the two cars in India at a competitive price. It is estimated that even if a high level of localisation is achieved on this hatchback, the Jazz would still have to be priced at nearly the price of the Honda City.

Therefore, for the Indian market, Honda would want to introduce an all-new India-specific small car, which may have a few elements borrowed from its models sold in the western markets. Honda may also want to use one of its current platforms for developing the new small car, so that the development and manufacturing costs of the proposed new car can be minimised. The new car is likely to be in the premium compact car segment, which currently constitutes models such as the Maruti Swift, Ford Fusion and the Hyundai Getz.

Further, with reference to the Indian automobile operations, Mr Fukui also said, "Annual automobile production capacity in India will be doubled to one lakh units by the end of 2007". The expansion to one lakh units at Honda Siel Cars' Greater Noida plant has already begun and is progressing as per schedule. This would imply that Honda's forthcoming plant would have an initial capacity of 50,000 units per annum. While Mr Fukui did not specify the location of the new plant, sources said that Honda has held discussions with the Governments of Maharashtra, Tamil Nadu, Rajasthan and Uttaranchal to set up the new plant.

The investment towards setting up the new plant is likely to be about Rs 1,000 crore to Rs 1,500 crore.

And with the company being a market leader in almost every segment it operates in, its entry into the domestic small car market may shake-up the current dynamics of the segment.

Honda may want to set up a second plant at a different location than Greater Noida where its current plant is located to leverage on geographical diversity. Analysts add that the new plant may also be located near a seaport as Honda may export the car to other similar markets.Sources added that the location of the new plant would be firmed up by February-March next year.

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(This article was published in the Business Line print edition dated December 20, 2006)
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