The other day I was thinking about Honda India's strategy, or rather the lack of it. Today I read in the Wall Street Journal and the Times of India that Honda has cut the price of its entry level sedan, the City by 4-8 percent. This will bring down the price of the City by at least INR44,000 from the present price of INR749,000 (ex-showroom price for the base model in New Delhi). A rather delayed reaction to present automotive market dynamics in India, but a very welcome one, nonetheless.
Although not as big as its Japanese brethren -- Toyota and Nissan -- Honda enjoyed a first-movers advantage in the Indian automotive market during the mid-90s, and has since then earned an enviable brand recall as a maker of quality and reliable cars. During the same time, other global OEMs such as GM, Ford, Hyundai and Renault too were trying to grab a share of the gradually growing Indian passenger vehicle market pie. The Americans and the French failed mostly due to outdated products and wrong calculations of the market pulse. The Koreans, due to the right product -- a feature rich hatchback, the Santro -- not only made a successful entry, but went on to become the number 2 in the 3.5 million strong current market.
Honda, on the other hand ignored the 75 percent share of the auto market -- hatchbacks, and focused on sedans (globally, the small car segment, or the sub-C segment), and launched the City. At the time of the City's introduction, the sedan segment in India was dominated by the Maruti-Suzuki Esteem and followed by the Ford Escort, the Opel Astra and the Daewoo Cielo. The American cars were based on outdated platforms and never made it big in India. The Esteem and the Cielo were popular models because they were affordable and comparatively more reliable. However, the quality and performance aspects were totally missing. It was this large gap that the Honda City filled along with the Mitsubishi Lancer (the Lancer was the only other sedan in its class that provided competition to the City).
Since then, the City has been bread and butter for Honda India. Honda asked a premium for the City as there were no other products to compete with it and rich Indians complied. Some defied and bought the Lancer instead. Honda's India operations were profitable. However, the party was spoiled as the average salaried Indian started earning more and other OEMs started looking at the Indian market in earnest and launched competitive models. Honda's sales volumes took a hit.
And its been down for a while. Honda plans to boost sales of the City by this price cut. However there are deeper problems within Honda India and it products.
Here is my take on Honda India's issues:
Although not as big as its Japanese brethren -- Toyota and Nissan -- Honda enjoyed a first-movers advantage in the Indian automotive market during the mid-90s, and has since then earned an enviable brand recall as a maker of quality and reliable cars. During the same time, other global OEMs such as GM, Ford, Hyundai and Renault too were trying to grab a share of the gradually growing Indian passenger vehicle market pie. The Americans and the French failed mostly due to outdated products and wrong calculations of the market pulse. The Koreans, due to the right product -- a feature rich hatchback, the Santro -- not only made a successful entry, but went on to become the number 2 in the 3.5 million strong current market.
Honda, on the other hand ignored the 75 percent share of the auto market -- hatchbacks, and focused on sedans (globally, the small car segment, or the sub-C segment), and launched the City. At the time of the City's introduction, the sedan segment in India was dominated by the Maruti-Suzuki Esteem and followed by the Ford Escort, the Opel Astra and the Daewoo Cielo. The American cars were based on outdated platforms and never made it big in India. The Esteem and the Cielo were popular models because they were affordable and comparatively more reliable. However, the quality and performance aspects were totally missing. It was this large gap that the Honda City filled along with the Mitsubishi Lancer (the Lancer was the only other sedan in its class that provided competition to the City).
Since then, the City has been bread and butter for Honda India. Honda asked a premium for the City as there were no other products to compete with it and rich Indians complied. Some defied and bought the Lancer instead. Honda's India operations were profitable. However, the party was spoiled as the average salaried Indian started earning more and other OEMs started looking at the Indian market in earnest and launched competitive models. Honda's sales volumes took a hit.
And its been down for a while. Honda plans to boost sales of the City by this price cut. However there are deeper problems within Honda India and it products.
Here is my take on Honda India's issues:
- Pricing - The Indian automotive market is highly competitive now. At three-fourths of the City's cost Hyundai and Maruti-Suzuki offers sedans with more features and creature comfort. Honda's lone hatchback, the Jazz, is priced around INR650,000. At the same price point most OEMs offer sedans. This is an important factor as the car is still an aspirational object for majority of buyers in India -- bigger is still better.
- Local sourcing - Honda sources ~60 percent of the components for it cars (the Jazz, the City, the CR-V and the Accord) locally in India. Its competitors source 80-90 percent components locally and are aiming for 100 percent local sourcing. Local sourcing reduces input costs for automakers and is reflected in the bottom line of the company's books. It also helps reduce custom duties in many essential components, such as engines.
- Diesel powertrains - With petrol prices nearly touching INR70 per liter, new car buyers are seriously considering diesel vehicles. Even if petrol and diesel prices were to be equal, ~35 percent Indian car buyers (personal estimate) would still prefer diesel powerplants. So, literally Honda could add 35 percent more sales volume. Anyway, with diesel engines becoming more efficient and less polluting, it is a very bad strategy to not have diesel powertrains, not only in India, but globally. Honda and Mitsubishi are the only OEMs in India that do not have a diesel option.
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