Honda plans big growth in India for 2-wheelers

Honda Motor Company has decided to go flat out in its motorcycle business in emerging markets like India where there is increasingly strong competition from local players.

The company has targeted increasing its annual bike production capacity in Asia (excluding Japan) from the current level of 16 million units to 18 million units by end-2011.

In a recent presentation on Honda's global strategy for the next 10 years, Mr Takanobu Ito, CEO, said, “Today, key competitors in those (emerging) markets are Chinese and Indian makers. In order for Honda to remain a market leader, it must not only maintain the high attractiveness and quality of products but also further improve cost-competitiveness to match the low prices of these competitors.”

Indian Market

In India, Honda is the market leader in the two-wheeler segment with its two arms, Hero Honda and Honda Motorcycle & Scooter India, accounting for a share of over 50 per cent. In the case of the former, it is the clear leader in the commuter segment with its Splendor and Passion models while HMSI has surged ahead of competition in the gearless scooter space.

However, with players like Bajaj Auto and TVS Motor Company launching a whole lot of contemporary bikes and scooters, observers of the auto sector believe that Honda will just have to work a lot harder to retain and build its market share.

Will this momentum through new products come from Hero Honda or HMSI which has often been touted as the global face of the Japanese manufacturer?

Speculation has been rife in the market for some weeks now that Honda is actually contemplating on parting ways with the Hero group and devoting all its energies to the growth of HMSI.

Divestment plans

Sources say that the company plans to divest its 26 per cent stake in Hero Honda in phases by offering it to PE investors. “It will get a great deal of money in the process which can be used to grow its Indian business through HMSI,” they add. It remains to be seen how operations will be recast at Hero Honda as a result. Equally, moving on without the Passion and Splendor may not be the easiest of options for Honda, observers reckon.

Yet, if one has to go back briefly in time and get to the Kinetic Honda chapter, the split between the partners actually played a big role in the creation of HMSI. The Activa firmly established Honda's supremacy in gearless scooters even after it bid adieu to the Kinetic association and had to wait for a while to get off the mark again.

“The company may well do this with HMSI and launch two motorcycles in the commuter category which will be a lethal mix of a competitive price and top-class features,” observers said. HMSI has not achieved dramatic numbers in bikes yet simply because it needs the right product for the commuter segment where Hero Honda reigns supreme.

To date, there is no official confirmation on the news of Honda looking at exiting its venture with the Hero group. What emerges clearly though is that the company is dead serious about putting its operations in countries like India on the fast-track.

“In emerging nations, motorcycles are a part of people's daily lives and giant markets with the overwhelming size of their populations have the potential to grow further and become key pillars of Honda's business,” Mr Ito said.