Honda revs up to take on Hero

November was not just another month for Honda's two-wheeler business in India. It saw the company's wholly-owned subsidiary report sales of nearly two lakh bikes and scooters, its highest ever in the country since it first set up shop a decade ago. In the process, Honda Motorcycle & Scooter India (HMSI) replaced TVS Motor as the third-highest manufacturer, with its former ally, Hero MotoCorp, and Bajaj Auto in the top two slots.

EXPANSION SPREE

By the beginning of 2012-13, Honda will have commissioned the second production line at its new plant in Rajasthan, which will see monthly output from its two facilities go up to nearly 2.5 lakh units. The Japanese automaker is also working on its third plant in Karnataka which, like the Manesar and Rajasthan units, will have an annual capacity of 1.2 million units. From Honda's viewpoint, the ideal situation would be to have all three plants producing four million bikes and scooters every year by 2014-15.

According to industry grapevine, this is only the beginning of an aggressive journey for the company, which is determined to recover the top slot it ceded to the Hero group after the duo parted ways recently. Apparently, Honda is keen on setting up two more plants in the Western region (most probably Gujarat and Maharashtra) which will mirror the 1.2-million unit annual capacities of the other three units. If the script runs according to plan, it will have more than six million two-wheelers rolling out of its facilities by 2017.

Will this marathon effort be adequate to take over the leadership mantle from Hero MotoCorp? The company has made it clear that it will play the pricing game aggressively for its India strategy. This was apparent from what its global President & CEO, Takanobu Ito, said at a presentation on Honda's strategy for the next decade. “Today, key competitors in those (emerging) markets are Chinese and Indian makers. In order for Honda to remain a market leader, it must not only maintain the high attractiveness and quality of products, but also further improve cost-competitiveness to match the low prices of these competitors,” he had remarked.

TOUGH RIVAL

Clearly, the company is only too aware of the fact that the Indian landscape has changed considerably since the 1980s, when it had forged two independent joint ventures with the Hero and Kinetic groups for motorcycles and gearless scooters.

Both products caught the attention of the market and marked the beginning of an interesting saga in the Indian two-wheeler segment. Women made a beeline for the gearless scooter and it was only a matter of time before men, who first considered it too sissy, followed suit.

Though it broke up with Kinetic earlier, Honda took little time to make up lost ground by setting up its 100 per cent arm, HMSI, which is now the market leader in gearless scooters, thanks largely to the hugely popular Activa.

The alliance with the Hero group lasted a lot longer and Honda is only too aware that it is up against a far tougher adversary compared to Kinetic, which just lost its way in the scooter arena after the divorce. The Munjals of the Hero group played a key role in the joint venture even though the products were from the stables of their Japanese ally. They helped grow the market for the bikes through a carefully-plotted retail strategy which ensured that virtually every nook and cranny of India was covered.

As a result, Hero Honda made such an incredible connect with the masses that it became the most trusted and reliable two-wheeler brand in the country. The Splendor and Passion, in particular, emerged the monarchs of the commuter motorcycle segment and continue to hold their sway on the market. Hero MotoCorp knows this only too well and will continue to nurture these two brands in the future.

LEADERSHIP GAME

It is here that Honda faces its biggest challenge in the leadership game. “It can pull it off if it launches a better motorcycle than the top-selling Splendor at a lower price. This is the only way to wean the next generation of customers away,” an industry veteran said. The Japanese automaker will have no problems playing the price game because of its sheer size. It can afford to take a beating on its bottomline if this means taking the numero uno slot from its erstwhile partner.

However, HMSI continues to be associated with the Activa scooter even while it has a clutch of motorcycles like the Unicorn, Shine and Twister in its portfolio. Clearly, scooters have been the greater success story, and Honda would be desperately looking for the big break in motorcycles, which will help shed the Activa-led image. It also makes greater business sense, since the market is still heavily loaded in favour of bikes, a fact that Bajaj Auto quickly grasped, which spurred its move to exit the scooter business completely.

In the meantime, Hero MotoCorp will just not sit still and watch the party. It has already indicated its intent of setting up a fourth plant, expected to be commissioned in the South, which will see its overall annual output inch towards the ten million mark. Likewise, Bajaj Auto has made it known that it will be doubling production, again to ten million units, during the next 3-4 years. However, its business model will see a greater focus on exports, which means Honda and the Hero group will battle it out on the local turf.

It remains to be seen if the slowdown will dampen sentiment in the coming months. For the moment, two-wheeler sales continue to be buoyant, quite unlike cars which are sputtering. While a whole lot of companies are going slow on their expansion plans, Honda is unlikely to hit the brakes. After all, it intends to eventually make India its largest two-wheeler base, ahead of Indonesia and Vietnam, during the next 5-6 years. Market leadership, though, could take a while longer.

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