Diesels, New Products Drive Honda’s India Reinvention

MUMBAI – The new face of Honda is emerging in India as its new projects are integrated with the auto maker’s global plans.

Honda Cars India is the new name of the Japanese auto maker’s subsidiary following the dissolution of the Honda Siel Cars India partnership. Now Honda has a fresh strategy for a diesel engine plant, small sedans, smaller cross/utility vehicles and even-smaller cars in India’s lowest tax bracket of 12%.

The plans are to be implemented over the next five to 10 years with an urgency and energy rarely seen in Honda’s Indian operations of the past. The auto maker is investing Rs32 billion ($600 million) to raise its total investment here to Rs59.9 billion ($1.1 billion).

“We have now reached the stage of going on an offensive,” Honda CEO Takanobu Ito, said last month in New Delhi.

Ito’s aim is to double Honda’s global volume to 6 million vehicles by 2017, with half of sales coming from the emerging markets of India, China, Thailand, Indonesia and Malaysia. A “mutually complementary structure in Asia is being created to achieve these goals,” the auto maker says in a news release.

The Brio premium compact and Jazz (Fit) hatchback are the core models in Honda’s global offensive and Indian revival over the next five years. Both platforms are being diversified to offer a complete range of models, and the auto maker’s first-ever diesel engine will be manufactured at its plant in Tapukara, Rajasthan.

Diesel cars’ share of India’s market jumped from 28% in fiscal 2009 to 40% in fiscal 2011 and to 50% in the quarter ended in June, according to the Society of Indian Automobile Manufacturers. Diesel sales in the quarter ended in September hit 75%-80%, the group estimates.

The 1.5L diesel will be offered in India in anew entry-level sedan based on the Brio platform. While Honda will not produce diesel versions of existing models, Ito says oil-burners will be introduced in all new models and variants as they launch.

The Brio and Jazz, to be badged as the Fit in India, will be diversified; both will offer the full range from hatchback to sedan, CUV to multipurpose vehicle and gasoline to diesel power.

The new Brio upgrade will follow the highly successful experiment of Maruti Suzuki’s Swift/Dzire and Volkswagen’s Polo/Vento, which saw sedan models created on popular hatchback platforms.

In the last decade, Honda had carved out a niche market in India and was well-established in the premium segment with the locally made Accord, Civic and City and the imported completely built-up CR-V CUV. With its two state-of-the-art plants, it reached a 3% market share and peak sales of 62,337 in 2009, according to WardsAuto data.

But Honda was slow to respond to customer preferences that shifted during the past two years toward smaller and affordable CUVs, small premium cars and diesel engines. The auto maker’s problems intensified when natural disasters in Japan and Thailand in 2011 disrupted supply lines to India.

Between 2009 and 2011,Honda’s Indian sales dropped from 62,337 to 47,548 and its market share fell by half, from 3.2% to 1.6%, during a period of overall industry growth.

The Jazz offered high quality but was not competitively priced; the Brio, however, helped the auto maker record 51,588 deliveries in the first eight months of 2012, up 46.6% compared with year-ago and good for a 2.3% share.

However, it soon became obvious that the sales were spurred not only by the new Brio but also by discounts on other Honda models. As gasoline prices soared in midsummer, Accord and Brio prices were cut about Rs125,000 and Rs25,000 ($2,400 and $470), respectively.

But Brio, Jazz and City prices were raised 2.6% this month to reflect rising costs of parts, production and finance.

Honda’s larger market penetration this year also reflects ongoing labor troubles at Maruti Suzuki that cut the No.1 auto maker’s share from 36% to 32% in August.

Now, Honda is looking to its expanded model lineup and belated diesel technology to put itself on a more solid footing in India.