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Honda Cars strives to strike balance between risk management and growth

Murali Gopalan | Updated on July 23, 2020 Published on July 23, 2020

Gaku Nakanishi, President & CEO of Honda Cars India

Projections will need to be tempered during these challenging times, says its President and CEO

As President and CEO of Honda Cars India, Gaku Nakanishi believes that pragmatism is the need of the hour with Covid-19 on the rampage. “My challenge this year is to strike the balance between risk management and business expansion. We must be careful handling this as these are tough times,” he elaborates.

The lockdown has also spawned a lot of debate among industry circles on its duration and the fact that it took the wind out of the economy. The auto sector was among the worst affected with sales plummeting in April and May.

Nakanishi says the choices on hands were not so straightforward as it may seem considering that safety is important along with handling risk management. “If we put priority on safety, a strict and long lockdown is critical to avoid risks. On the other hand, if we focus on 100 per cent economical revival, there could be a surge in cases as seen in the US and Brazil,” he says.

The important thing, continues the Honda Cars chief, is to balance the two. “I am not sure if the current situation in India is the best way or not,” he says, a clear reference to the sheer unpredictability of the Covid-19 curve. Some parts of the country are seeing a sharp rise in infections while others which were celebrating initially are now concerned about a renewed outbreak.

“If you want to know about our situation, we are managing this very well at Honda Cars. We started production and gradually seeing a recovery of the business. Yet, it is important to constantly monitor the situation,” cautions Nakanishi.

Honda Cars, continues to believe in the “future of this country” even while there is no telling how long the pandemic will last. “Growth projections will have to be tempered. Our business should grow and we need to sustain it successfully,” says Nakanishi.

Challenges ahead

It has not been the easiest of times for the auto industry with the slowdown being the first challenge followed by the Covid-19 onslaught which has thrown business out of gear. From Honda’s point of view, investments in India will continue as planned though “we need to be very careful about utilising our limited budget/resources efficiently”.

Despite the Covid-19 overhang, the Japanese automaker has been focussing on new launches with the the new City being the latest to join the parade. “City is Honda and Honda is City. As the flagship model, it is very special,” says Nakanishi. The brand has been the face of Honda for over two decades now which is testimony to its strong customer connect.

“However, market trends are changing significantly from last year thanks to attractive SUVs from competitors. Our mission is to meet customer needs and offer the best by watching trends,” he says. Clearly, the Korean onslaught from Hyundai and Kia has changed the SUV market dynamics in recent times.

The other challenge for the industry is to cope with the reality of rising fuel prices especially diesel which has caused a massive shift in customer preference towards petrol. This is a complete volte-face from 2011-12 when diesel was heavily subsidised and ended up being far more affordable than petrol. The days of dieselisation in the passenger car space are clearly a thing of the past. Honda Cars offers both fuels in its product portfolio. As Nakanishi explains, product and powertrain development takes anything from three-to-five years. The decision to launch diesel options for City, Amaze, WR-V and Civic was taken “at least four years ago”.

As he puts it, as much as nobody expected the world to turn topsy-turvy with Covid-19, it was likewise difficult to predict that this kind of diesel price hike would actually take place in India. “At that point in time, we thought certain percentage of customers like diesel and our mission was to satisfy their needs,” says Nakanishi.

This is what prompted Honda Cars to retail diesel versions of popular models but if this “incredible price hike” continues and customers are not happy as a result, “our judgment might be made based on market needs”. The company will then “carefully monitor, research and study” the situation before reaching any decision on diesel as a fuel of choice.

Way forward

Nakanishi agrees with the popular view that the pandemic will lead to some customers steering clear of public transport. “For these people, affordability in cars will be a welcome feature,” he says. This is where Honda hopes to leverage the opportunity with its new Amaze as an entry-level option while simultaneously working towards “strengthening and enriching” its used cars business.

“Together with Amaze and used cars, we can grow the pie at the entry level. We are confident of the used car momentum going forward,” says Nakanishi. Interestingly, he also believes that the tilt towards personal mobility will extend to Tier 2/3 cities. This optimism is based on the premise that potential buyers living beyond the predictable list of Mumbai, Chennai, Bengaluru and Delhi will prefer to have “bigger and spacious homes” which may not be close to their places of work. It is this category of customers who will be inclined to buying cars and “Honda will work keeping this trend in mind”.

New collaboration

Another top priority for Nakanishi is to seek greater synergy levels between the other Honda businesses in India comprising two-wheelers and power products. There was a pretty important breakthrough last year in the endeavour to collaborate with two-wheelers.

“The concept involved using the huge two-wheeler customer data base of HMSI (Honda Motorcycle & Scooter India) for our four-wheeler space,” he explains. Even while the buyer profile of these two categories are quite different, the key was to check out the list of those two-wheeler users who could afford buying a car.

“We started to approach and communicate with these two-wheeler customers. Thanks to HMSI’s help and collaboration, we are working on that even though the results are not so big right now. Yet, we will not give up and, step-by-step, we continue find two-wheeler customers for our four-wheelers,” says Nakanishi.

HMSI is the second largest two-wheeler player in the market with four plants located across Haryana, Rajasthan, Karnataka and Gujarat contributing to a combined capacity of over six million units. Even a small percentage of its two-wheeler buyers upgrading to a car will translate into a big number.

It is here that Honda Cars will hope to capitalise both with the Amaze at the entry-level as well as used cars. Incidentally, the styling and design of the new Amaze when it was launched in 2018 was to woo the young buyer. Prior to the Amaze, the Brio was the company’s entry-level model but its production was discontinued last year. In an earlier interview with this writer, Nakanishi explained why it had to go. Admitting that it was “an emotional moment” to slam the brakes on the Brio in India, it was inevitable. “With limited resources, the strategy should be which area to focus on and based on this reality, Brio production was stopped,” he said.

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Published on July 23, 2020
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