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Honda seeks unique slot in India

The immediate priority of the company is to increase the capacity of the Noida plant

SCALING UP: Work in progress at Honda Siel's 's Noida plant.

THE SIZE of the domestic passenger car market is around one million now. Small cars dominate with a share of 70 per cent. Consultants like Booz-Allen Hamilton and McKinsey predict that the passenger car market would double by 2010 and cross the 3.5 million mark by 2015. Honda Siel Cars India is present only in the 30 per cent market segment and not in the dominant space. Will it enter this category? "It will happen," asserts Masahiro Takedagawa, President and CEO of the company.

In an interview to The Hindu in New Delhi recently, he hinted that, "we (Honda Siel) can follow what the Government of India directs or indicates." He was impressed by the tax incentives announced in the last budget by the Union Finance Minister, P. Chidambaram. "The Government wants to set a direction. That is also the global trend," he pointed out.

Development work

What is holding Honda Siel from entering the small car business? Mr. Takedagawa said that his company did not want to bring the `current model.' Honda was keen to give its latest model to the Indian customers, he added. "I don't think they (customers) expect Honda to give old and cheaper cars. They will be reasonably priced and offer good value," he said. Currently, development work on 28 models was on. "All we have to do is to select which will be suitable for us (Honda Siel) and then add Indian requirements," he observed.

Honda Siel was not willing to do anything in a hurry. The immediate priority of the company is to increase the capacity of the Noida plant to one lakh cars by the end of next year from the current 60,000 units. "Our plan is to use in full this production capacity by current models — City, Civic and Accord. That is enough to fulfil one lakh." Honda Siel would go in for another production facility if it wished to add another segment of cars to its product offering in India. That would be some three to four years away, he said. Mr. Takedagawa said Honda Siel laid much store by full capacity utilisation. Once the capacity was fully used up, Honda Siel could think of a new plant. "We don't have to be in a rush. If the Indian customers want that car (smaller one), we will provide. We never push," he said.

Small would not necessarily be cheap, he said. "All Honda cars will be of global standard and meet Euro 4, Euro 5 and whatever," he made it clear.

Fielding a range of questions, he said the one-lakh capacity milestone would be "just a small step" for Honda. This had taken ten years. The next one lakh wouldn't take that long, he said. Mr. Takedagawa reiterated that customer came first for Honda and that numbers "are not our commitment." Honda had the numbers, too, he added. "Numbers are necessary. But they are not priority for our long-term business plan. That is globally Honda's approach and policy," he pointed out. Honda, he said, "wants to be always unique. We want to be something special to our Indian customers." Honda had been in the Indian motorcycle market for over two decades now. "We are dealing with over three million motorcycle and 60,000 car customers. The Honda brand is well penetrated with the system," he said. Given this backdrop, he saw possibilities for Honda to expand its car business in India.

Mr. Takedagawa said there was scope for Honda Siel to improve in the area of local procurement. The indigenous content in City was around 80 per cent and in Civic 68 per cent. The company currently imported body panels from Thailand. "You need to have a big stamping facility," he said.

The company was assembling engines here. Actual production of power train required a minimum one lakh volume, he pointed out.

Honda has four companies in India — cars and power products (both in joint venture with the Shriram Group), Hero Honda (in tie-up with the Munjals) and an independent motorcycle venture. "We know the difficulties of doing business. We also understand the benefits of having local partners)," he said. The Hero Honda business was a success. "We have no reason to complain," he added.

On the Siel Group raising its stake in Honda Siel to five per cent from the current one per cent, he said, "for us nothing has changed. Our relations will continue." Answering a question on the formation of Honda Motor India Private Ltd., he said the new company would perform the regional function. It was formed to facilitate a faster decision-making process in the wake of Honda's Indian business getting larger.

Vendor base

On the evolution of the component industry in India, he said, the quality, cost and delivery had improved a lot, especially in the past three years. Honda, he said, had a vendor base of 98 in India. "That is also a reason for advancement of our expansion plan".

On the FTA (free trade agreement) with Thailand, he said Honda Siel imported only around 8-10 pieces from Thailand under the FTA. Nonetheless, he said that logistic cost could not be wished away. "Local procurement is necessary to improve cost," he added. He saw advantage in India producing some material and steel-related products. An FTA with ASEAN, if it fructified, would benefit Honda, he said.

K. T. Jagannathan

in Chennai

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