Honda hopes to vroom its way up in bottom segment

Plans to consolidate its place in the motorcycle market by pitting the Dream Yuga, to be launched next month, against Hero MotoCorp’s Splendor Honda Motorcycle and Scooter India (HMSI), the Indian subsidiary of Honda Motor Company, last year grew the fastest among two-wheeler companies in the country — at double the rate logged by the industry. The company’s overall growth has come in spite of its minuscule presence in the entry-level (100cc-125cc) segment, in which market leader Hero MotoCorp (formerly Hero Honda) commands two-thirds of the market. The entry-level segment accounts for a lion’s share — 70 per cent — of the domestic motorcycle market. It had seen sales of nearly 7.1 million units last financial year (2011-12), a year in which Indians bought 10.09 million motorcycles — more than any market in the world except China. The Delhi-based Hero MotoCorp has thrived in the entry segment due to the success of its Splendor, Passion and CD Dawn/Deluxe brands — Splendor being the world’s largest selling two-wheeler brand. Hero has a total of nine models in this segment, the most by any manufacturer. Though Honda has three models on sale in the entry-level segment — Stunner, Shine and Twister (all below 125cc) — it commands only two per cent market share with sales of 142,000 units, compared with Hero’s 5.32 million units. Propelled by new products and a stronger brand recall, Hero managed to clock a growth of 16 per cent in the entry segment, even as sales of all other peers dwindled. Bajaj Auto, the second-largest in the segment posted a drop of 2.65 per cent, while TVS Motors saw a drop of 7.5 per cent. Honda’s growth in the segment dropped 14.33 per cent. One of the reasons behind HMSI’s sales drop in this segment was the absence of products from its stable in the price Rs 41,000-44,000 bracket, where Hero’s Splendor and CD Dawn/Deluxe sell. HMSI’s entry motorcycle Twister is priced at Rs 45,140 (ex-showroom, New Delhi). Yuga price for a mid-range model, according to sources Honda’s limited presence through its dealer network has also led to a fall in sales. On the other hand, Hero’s consumer touchpoint is across 5,000 outlets — comprising a mix of authorised dealerships, service and spare part outlets and dealer-appointed outlets. Its distribution strength is more than three times Honda’s 1,500 outlets at present. To become a force to reckon with in the price-sensitive bread-and-butter entry-level motorcycle segment, Honda is gearing up to launch its cheapest motorcycle, the Dream Yuga, positioned directly against the Splendor. The launch would happen sometime next month. The Dream Yuga, showcased at the biennial Auto Expo in New Delhi this year, will also be Honda’s cheapest motorbike in the world. The Dream Yuga lacks the stylish punch Honda is famous for. The company has chosen to keep the styling simple, much like the Splendor. For the Yuga, Honda is banking on its twin strategy — of offering more and charging less. According to sources, the company is keen to price position the bike below the Splendor (Rs 41,350, ex-showroom New Delhi), but a final call will be taken closer to the launch. In addition, the company aims to market its offering a better powered product than the Splendor as its selling point. The Yuga will have a 109-cc powerplant, while the Splendor is powered by a 97-cc engine. Though Honda has not provided indicative fuel efficiency figures for the Yuga, the bike will compete with the Splendor’s 65-70 km per litre. The fuel efficiency is expected to be attractive, as the new bike borrows its engine from the Twister, which, HMSI claims, gives a mileage of 70 km per litre. An HMSI spokesperson says: “The 100-110-cc motorcycle segment has continued to show a pattern of 16 per cent compound annual growth rate in the last three years, on a very high base volume. It is an attractive business proposition for any manufacturer. With the upcoming Dream Yuga, we plan to enter and expand our customer base in the entry-level motorcycle segment.” Besides, the company is also ramping up its dealer presence, with a focus on the hinterland, where Hero enjoys almost a monopoly. Honda is adding over 300 outlets this year “to reach closer to our customers in both urban and rural areas”. Also, HMSI’s upcoming third plant at Narasapuram in Karnataka, which is expected to be operational in the first half of 2013, will expand its production capacity by another 1.2 million units from the existing 2.8 million units, taking its total production capacity to 4 million units a year. But, since others such as Bajaj Auto and TVS Motors have tried and fallen short of unseating Hero from the top spot in the past, will Yuga change the dynamics of the segment? Not everybody seems to be convinced. The head of research at a leading brokerage house says: “Unlike the scooter segment, (where Honda had a first-mover advantage in the gearless segment), the motorcycle segment is a well-penetrated one. Second, there is no differentiation as far as the Dream Yuga is concerned.” The history has it that features rarely do the trick. In the past, Bajaj Auto tried to exceed Hero’s edge by projecting bikes with higher power, but failed to make an impression, he adds. Since early 2000s, Bajaj Auto, now displaced to the third spot by HMSI in domestic ranking, has tried to penetrate the entry segment with at least half a dozen launches. Its Discover has been the only model that has stood out. Anil Dua, senior vice-president (marketing & sales), Hero MotoCorp, says: “Each of Splendor and Passion clocked sales of more than a million units in 2011-12. With the planned launch of two more bikes – the 125-cc Ignitor and the 110-cc Passion XPro – later in the year, we are confident of further strengthening our presence in this segment.” In order to meet the growing demand for Hero products, the company has also been ramping up capacity at its three manufacturing plants and has taken up the current installed capacity to close to seven million units. Even as most analysts admit that Hero will lose some market share, given the competition, they are sceptical about Honda’s ability to make a dent in in the overall market dynamics of the segment. Ajay Shethiya of Centrum Broking says: “Given capacity constraints and distribution challenges, the launch of the Dream Yuga will not significantly change industry dynamics.” Across segments, Honda last year sold two million units in the country, taking its market share to 15 per cent. Moreover, single/dual-brand dominance pervades all segments of the two-wheeler sector. While Hero dominates the executive segment, with a 74 per cent share, Bajaj has a close grip on the premium segment with a 49 per cent share. In the scooter segment, Honda, which launched the gearless scooter, is sitting pretty with a share of 47 per cent. Since two-wheeler sales in the country are largely a function of the brand name, it could be difficult for Honda to immediately challenge Hero in the entry-level segment. However, once it establishes the Dream Yuga as a brand in a couple of years, and sorts out its capacity issues, it could pose a threat. To unseat Hero from its perch will be a daunting task. The Yuga can make an impact if it is positioned as a value-for-money product, says Abdul Majeed, leader (automotive practice), PricewaterhouseCoopers India. “If customers perceive it as a value-for-money product and it fits their scheme of things in terms of pricing and fuel efficiency, the product could have an impact in the short-term itself, with Honda’s share in the segment rising,” he adds.