Thursday, July 26, 2012

Stratagem-HONDA INDIA: SAGGING SALES

Failure to Refresh its Offerings has Cost Honda dear, which has Lost Sales and its Leadership Position in The Executive and Premium Cars. 

Above all, it’s the rising demand for diesel cars and the new product offerings in the mid-size sedan segment that has caught Honda unawares. Even the Johnnie-come-lately Volkswagen’s Vento has outsold Honda City, selling 3,994 units as against City’s 2,773 units at the end of March 2011. What’s worse, the beleagured Japanese automaker has no back-up plan to make up for the loss of volumes on account of the tremblor disaster. In a scenario where 65% of the total cars sold in the mid-size sedan segment are powered by a diesel engine, Honda paid the price of completely ignoring the diesel engine car market and then waking up too late by when competitors had already charged ahead. As such Honda is still two years away from developing a diesel engine for its cars in the Indian market. “Keeping in mind the price differential between petrol & diesel, it is expected that the demand for diesel cars will go up even further,” says Kapil Arora, Partner (Automotive), Ernst & Young. Going by market estimates, close to 40-50% of the total sales of products like Vento and SX4 come from the diesel variants. The sudden dieselisation of the Indian sedan market has only added to the woes of the Japanese auto major. “The rise in demand for diesel cars is because of the gap in the price of petrol & diesel. As diesel is comparatively cheaper and gives better mileage, consumers are preferring diesel cars in the light of the rising petrol prices,” says Jnaneswar Sen, VP – Marketing, Honda SIEL. He adds that Honda will take another two years to come up with a diesel engine for the Indian market. The question is: Will Honda be too late to in waking up to the call by 2013?

Going by the market standing at the end of FY 2010-11, Honda SIEL has a 2.36% share in the Indian passenger car market, as compared to the 14.26% share of Hyundai Motor India. The latter entered India in 1996 (almost a year after Honda’s entry into India). Even players like Ford, General Motors and Toyota have inched ahead of Honda even though they started their Indian journey around the same time. For the record, GM today has a market share of 4.25% while Ford is the sixth-largest player with a 3.91% market share. Taking into account the success of products like Figo, Beat and Spark, Honda seems to have ceded the space in the hatchback segment to its rivals. But for the earthquake, the launch of Honda’s Brio, which is expected to debut in the high-volume fetching sub Rs.5 lakh segment, has just got a little longer. The product was expected to be running on Indian roads by August 2011, but now it will be launched during the last quarter of this year. “Apart from the metros, we see huge growth potential in Tier-II & Tier-III cities for this car and therefore we have been expanding our sales network to reach out to newer cities and markets in the last 2 years. The potential to increase sales from the rest of the country is huge,” says Sen.

In the meantime, Honda will have to ramp up its marketing efforts to make up for the lost volumes due to the production cuts. As the Brio will make its debut during the festive season, Honda will be pinning a lot of hopes to pull off high volumes. Considering that Honda will not make its presence felt in the diesel segment until 2013, Brio will be the only hope for the company to make it count in the highly-competitive Indian market. One hopes that Honda’s extensive research on the Indian hatchback market and the lessons it learnt from the Jazz episode will help the Japanese carmaker to get it right this time around with the Brio.

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