Oct. 7 (Bloomberg) -- Honda Motor Co., the world’s largest motorcycle maker, plans to introduce a new motorbike that may be its cheapest to raise sales in emerging markets amid rising competition from Chinese and Indian rivals.
Honda will build and sell the two-wheeler for as little as 4,000 yuan ($599) in China starting next year and also introduce it in Nigeria and Latin America, Tatsuhiro Oyama, senior managing director in charge of Honda’s motorcycle operations, said in an interview in Tokyo last week.
Emerging-market rivals “will really push into this area,” he said. “Honda needs to be right there with them so we won’t get bypassed.” The company will compete with Chinese and Indian motorcycle makers, targeting low-income customers in other developing “next markets,” Oyama said.
The new model may boost Honda’s revenue as demand for motorcycles weakens in Japan, Europe and the U.S. Higher emerging-market sales may also offset potentially lower profits repatriated from the company’s Indian unit Hero Honda Motors Ltd. as KKR & Co., TPG Capital, Carlyle Group and Bain Capital LLC compete to acquire a part of Honda’s 26 percent stake, according to five people with direct knowledge of the situation.
Cheapest Motorcycle
Shares of Tokyo-based Honda fell 0.3 percent to 3,015 yen as of 12:38 p.m. in Tokyo. The stock has fallen 3.1 percent in 2010, compared with an 8 percent drop for the benchmark Nikkei 225 stock average.
Currently, the company’s cheapest motorcycle in China is the 100cc Wave that retails for 4,600 yuan, while in India the 36,350-rupee ($817) 97cc CD-Dawn is its lowest priced model. Honda’s most expensive offering is the 1,800cc Gold Wing that sells for 3.68 million yen ($44,370) in Japan.
Mahindra & Mahindra Ltd., based in Mumbai, last week unveiled two motorcycles for sale in India, Africa, Southeast Asia and Latin America. Bajaj Auto Ltd., India’s second-largest two-wheeler maker, aims to roughly triple its global market share to 30 percent by boosting overseas sales.
China’s motorcycle makers are benefiting from low-cost suppliers and support from the nation’s government, Oyama said.
Two of the buyout funds interested in Honda’s stake in Hero Honda may jointly buy about 15 percent, valued at $1.1 billion, three of the people said, declining to be named before an official announcement, Bloomberg News reported Sept. 17. Another 5 percent may be sold to the Hero Group’s Munjal family, which holds a 26 percent stake in the New Delhi-based company, two of the people said.
Munjal Family
The Munjal family “has its own intentions, and we are considering them,” Oyama said. “You should understand that we are not really taking the initiative on this matter.”
Honda and the Hero Group are in discussions about renewing a technology-licensing agreement that expires in 2014, Oyama said.
Emerging economies are offering Honda’s motorbike division opportunities for growth. While unit sales plunged 41 percent in North America last fiscal year, they rose 1.4 percent in Asia outside of Japan.
In India, Honda is expanding an existing motorcycle plant and building a new plant to add 2.2 million units of capacity next year at Honda Motorcycle & Scooter India Pvt., a wholly owned unit.
Hero Honda
Hero Honda, maker of half the motorcycles sold in India, will add 300,000 units of capacity by January.
Vehicle development is undertaken by Honda, and Hero Honda targets customers in rural areas, while Honda’s wholly-owned unit focuses on urban markets, he said.
Separately, Honda is grappling with a strong yen, which traded at 82.88 against the dollar today, close to a Sept. 15 record, reducing the value of repatriated profits from exports.
“The yen at anywhere between 90 and 110 makes things difficult,” Oyama said.
Honda builds motorcycles at its plant in Kumamoto prefecture in southern Japan, which exports large leisure models to the U.S.
As demand in developed markets dwindles, Honda is increasing production overseas with 56 percent of Japanese motorcycle sales imported from abroad. That ratio will rise, Oyama said.
While the strong yen cuts Japan’s competitiveness, large motorcycles require a high level of production quality and development that cannot be replicated overseas, he said.
“We still need production in Japan,” he said.
