India to be Honda’s top 2-wheeler market next year

India is poised to become Honda’s largest two-wheeler market by the middle of next year. In the process, it will overtake Indonesia which accounts for around five million units annually.

At present, Honda has installed capacity of 4.6 million units spread across its facilities in Haryana, Rajasthan and Karnataka. Next year will see the first assembly line of the new plant in Gujarat kicking off production. This will translate into annual production of 600,000 units after which Honda will start work on the fourth assembly line in Karnataka. This will increase annual output at this plant to 2.4 million units.

Once this is in place, the Japanese automaker will focus on kick-starting work on the second assembly line in Gujarat which will result in the facility rolling out 1.2 million scooters annually. By end-2016, Honda will have 6.4 million units in place with Karnataka being the single largest plant with 2.4 million units and Haryana in second place at 1.6 million units. Gujarat and Rajasthan will be tied at 1.2 million units each.

Though the original idea was to immediately begin work on the second assembly line in Gujarat, the company knew this could cause problems especially when infrastructure was not completely in place. According to Shinji Aoyama, Chief Operating Officer for Motorcycle Operations, Honda Motor Company, expanding operations first at the Karnataka facility was a far more pragmatic option.

This decision would result in a seamless capacity expansion schedule. After all, Gujarat is Honda’s most recent addition to its India plant kitty which means this would be accompanied by typical teething problems in starting operations. The company already had its work cut out when it increased capacity at Karnataka from 1.2 million to 1.8 million units and perhaps did not want to go through a similar experience in Gujarat. Upping Karnakata’s capacity to 2.4 million units first made sense after which all energies could be focused on Gujarat’s second phase of expansion.

Aoyama, who was heading the Indian operations till a few years ago, will be doubly keen to step on the gas and get numbers ticking rapidly. He was around when Honda and its ally of 26 years, Hero, called it quits in end-2010. Since then, the company’s India growth story has been in rapid overdrive. What started off as a single plant in Haryana at the time of the divorce with Hero quickly grew to include Rajasthan and Karnataka with Gujarat being the latest addition to start operations next year.

Yet, it is not as if Hero has been sitting quietly with the latest announcement being its intent to set up a plant in Andhra Pradesh. It will now be interesting to see how quickly Honda can catch up with its former Indian partner. From Aoyama’s point of view, he will want the India team to go flat out with its rural retail drive where there is tremendous potential for two-wheeler demand. This is already happening in a big way and keeping pace with the creation of fresh capacity at Honda. And while the company’s scooter business led by brand Activa continues to grow by the day, Aoyama will want to see a similar momentum replicated in the motorcycle space.

For the moment, the Indian scooter market is growing at nearly 25 per cent annually and taking up nearly a third of two-wheeler output. It is a million dollar question if customer behaviour patterns follow the ASEAN way and scooters eventually end up surpassing bikes. Not many people within the industry think this will happen as better road connectivity will increase demand for bikes.

It will now be interesting to see if Honda will take a break after Gujarat and consolidate its India operations which will be nearly 6.5 million units by the end of next year. Setting up a new plant is not easy when it means creating a vendor cluster. Yet, demand for two-wheelers in India is expected to grow and touch 25 million units by the end of this decade. Honda will also be keen to service new growth regions like Africa from India and this could prompt it to set up yet another facility before 2020.

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