Honda's second plant to boost APAC sales

Honda’s second car plant in India, which began production this week, is part of a growth strategy for the Asia-Pacific region over the next three years.

In a recent visit to Mumbai, Hironori Kanayama, President and CEO of Honda Cars India, said the parent company had sold four million cars globally. The target for FY’17 is six million units and most of these numbers will come from emerging markets like India.

“We have an aggressive plan for Thailand, Indonesia, Malaysia and India to expand sales over the next three years,” Kanayama added. Needless to add, free trade agreements will more than help India’s cause from the viewpoint of supplying components but this is still sometime away.

In the ASEAN region, though, these pacts are already in place which means import duties are virtually zero. Countries like Thailand, Indonesia and Malaysia, which are on Honda’s radar, will have a distinct cost advantage in the process. “Once FTAs happen with India also, it will be a strong advantage and accelerate our growth in this market,” Kanayama said.

Big numbers Yet, the size of the domestic market is large enough for Honda to be sufficiently busy in India during the course of this decade.

The Rajasthan plant, along with the existing facility in Greater Noida near Delhi, will translate into a total capacity of nearly 2.5 lakh units by the end of this fiscal. Beyond that, this number could double by FY ’17 as the Japanese automaker inches towards its global target of six million vehicles.

Interestingly, Honda is perhaps the only automaker which has enormous brand equity both in its two-wheeler and car businesses. This is particularly true for India which is already the world’s largest bike market with Honda striving to be the top player by 2016.

On the other hand, Suzuki is clearly the market leader in cars but still has a lot of catching up to do in the Indian two-wheeler space.

From Kanayama’s point of view, this is an advantage that can perhaps be leveraged better. “There is a tremendous benefit in our brand because motorcycle customers are potential buyers for automobiles. This is a unique strength for Honda,” he said. For the moment, the numbers (of people transiting from Honda bikes to cars) may not be too much to write home about but they could well increase in the coming years thanks to the brand recall factor.

Even as the Indian automobile industry is in the midst of its worst slowdown in recent times, which prompted the Government to slash duties in the interim Budget, Honda is having a field day.

According to him, the good showing is due to a combination of factors which goes beyond the product. Honda is paying special attention to after-sales service keeping in mind that customers use their car for several years. This means that maintenance and minor repairs are part of the journey. “We are assuring customer satisfaction through after-sales and this is very important to Honda,” Kanayama said.

Successful sedans While the Amaze and new City promise plenty ahead, the numbers for the Brio at around 1,500 units a month are relatively modest in comparison. This was the car that was meant to fill the void in the premium hatchback category and it was launched with much fanfare in Thailand and India. Things went completely awry when the diesel wave started in 2010-11 and the Brio found itself isolated as sales of other hatchbacks soared.

Kanayama does not dwell too much on this issue. “We are comfortable with the Brio though it does not have a diesel option. We are sure we will do a lot with the new City and continue the good work on Amaze,” he said. The top priority now is to reduce the waiting list for customers and this is where the second plant will have its task cut out.

In addition, Honda will look at expanding its retail base in smaller cities and towns which are seeing rapidly growing demand for cars.

Kanayama does not think that doing business in India is particularly difficult given the focus on affordability when it comes to buying cars. “India is no different from the rest of the world which also wants competitively priced products. What is different here, though, is the preference for diesel,” he said.