Honda Motor plans to trim India operations

S Ronendra Singh New Delhi | Updated on January 07, 2021

HMSI has production facilities at Manesar (Haryana), Alwar (Rajasthan), Narsapura (Karnataka) and Vithalapur (Gujarat) with a combined capacity of 6.4 million units annually   -  Somashekar G R N

India continues to be a priority market, says Activa maker

Honda Motor Company is trimming its operations in India. The company’s recent Voluntary Retirement Scheme (VRS) for two-wheeler as well as car units has raised questions on its India strategy.

According to market watchers, Honda is working to save costs; offering VRS is one of the few steps for long-term sustainability. Both Honda Motorcycle & Scooter India (HMSI) and Honda Cars India (HCIL) maintain that they are realigning their production strategies for better operational efficiency with the objective of ‘long-term business sustainability’ in these uncertain times.

The company said it will not halt any investment in India.

Market share

Over the last few years the company has lost its market share in the passenger car market. Its only saviour is the City, which has been its bread-and-butter in the Indian market since inception. It was the third largest passenger vehicle maker in India, but has now slipped to sixth with home-grown companies such as Mahindra & Mahindra and Tata Motors and new entrant Kia Motors doing better. HCIL had a market share of 5.5 per cent in FY2018-19, which came down to 3.7 per cent in FY19-20. Honda has several immovable assets; the closure of the Greater Noida plant added another. Its Gujarat facility is lying unused, and Tapukara facility (Rajasthan) is not fully utilised, said another industry veteran.

In the case of Honda Motor’s two-wheeler business in the country, the company still enjoys the number one position in the scooter segment and is the second largest manufacturer in the overall two-wheeler market.

But Honda’s two-wheeler arm HMSI has also announced VRS scheme for its employees above the age of 40 or who have completed 10 years in the company. Last July, HCIL had introduced VRS for its employees and paid out ₹45-75 lakh as compensation to those who opted for it.

VRS scheme

“In order to maintain existence in the competitive two-wheeler market, it is essential to continue with high efficiency and competitiveness. Therefore, the management has introduced a VRS scheme for all the associates,” Naveen Sharma, Division Head - General Affairs, HMSI, said in a letter to the employees, which BusinessLine has seen.

The company’s directors are not eligible under this scheme, he wrote. The scheme will be effective from January 5 and will remain open till January 23. However, the management at its discretion can change the scheme without prior information or notice and may extend its time period, the letter said.

As benefits, HMSI has calculated the formula as — three months gross salary into completed year of service, one month’s basic plus Variable Dearness Allowance (VDA) into remaining year of service — and an ex-gratia of ₹22,000 into completed year of service.

The first 400 eligible employees who accept the offer will get an early bird incentive of ₹5 lakh each and if VRS application exceeds 400, additional ₹4 lakh will be paid to all the applicants, the letter said. However, the company has also capped the maximum amount for applicants for permanent workmen and Junior Engineer (JE) and above. For instance, for senior manager or vice-president, it has been capped at ₹72 lakh, at ₹67 lakh for managers, for deputy managers at ₹48 lakh and ₹15 lakh for assistant executive.

HMSI has production facilities at Manesar (Haryana), Alwar (Rajasthan), Narsapura(Karnataka) and Vithalapur (Gujarat) with a combined capacity of 6.4 million units annually. The Activa maker has more than 4,000 employees in Manesar.

“The Indian auto industry is going through a challenging phase from the past three years considering the prolonged demand slowdown and overall economic fall-out from Covid-19 pandemic. It gives an opportunity to those associates who may wish to explore new dimensions in their life and empowers them with best among the industry financial and healthcare benefits, while helping the organisation improve its overall operational efficiency,” the company said

‘Priority market’

The company added that India’s motorcycle business continues to be a priority market for Honda.

Recently, in an interaction with BusinessLine, Rajesh Goel, Senior Vice-President and Director, Marketing & Sales, HCIL, said that doing good or not is a relative question. “We don’t have a robust portfolio when compared to the competitors, but there is a certain intrinstic volume available in each segment we are present in. For instance, City, after the launch, is the market leader with around 45 per cent market share and Amaze is second and in some markets, it is number one in the segment,” he said.

On discontinuation of the Civic and CR-V, Goel said, “My first step is to be able to implement and follow the decision to get the desired results and when it happens, the entire playing field is available to have a relook as and when is required.”

Puneet Gupta, Director at IHS Markit, said, “They have some decisions which didn’t work well over the recent past, like the diesel plan. They launched for City and CR-V, which didn’t really work well.”

Published on January 07, 2021

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