The Real Honda Story

Takashi Nagai, the CEO of Honda Siel Cars (HSCI) is leaving India. So is Seki Inaba, the head of marketing at the company. Is there anything suspicious? Are they being called back by headquarters because they have failed to do their job in India? No. Nagai-san is moving to a more global profile as president of Honda Logistics. That’s an important position in the global Honda business and one should read it as ‘promotion.’ HSCI maintains that “every year a realignment or rotation of senior management takes place across the organiaation.” There is nothing more to it. You can find recent changes at Honda here

Deepesh Rathore, managing director at IHS Automotive in India says while two years is a slightly short time, companies like Honda and GM have a rotation policy. Looking at it as a reflection of poor performance would not be correct. "Even when Honda was doing well with the City, the previous India head Takedagawa did go back," he says. Honda’s market share is certainly down. Its vehicles are not selling. Here it is important to point out that the company hasn’t been producing anything for more than three months now. Its operations were disrupted because of the Thailand floods, and before that, the Tsunami in Japan. So as of today there are more than 15,000 Honda customers out there waiting to get their vehicles. Thankfully, HSCI resumed production at full capacity last week and the backlog should be cleared soon.

But don’t let any of that bother you. Rotation or no rotation, flood or no flood; the fact that Honda has not been doing well in India is a story that has played itself out over the last two years. I mean here is a company which enjoyed the segment leader position with the Honda City and Civic for years. Customers loved Honda cars for the engineering, reliability, premium styling and hated it for the lack of features. They still do. But over the last couple of years Honda has been outplayed in just every department. Be it products, localization or just reading the market right. Here’s how HSCI lost the plot.

First: the entry of a strong competitor in Volkswagen. And the coming of age of the Koreans which is Hyundai. Volkswagen’s entry strategy with the Vento proved to be a formidable competition to the City. It was priced well, localised efficiently and had the European comfort and premium tag to it. Hyundai’s fluid design appealed to the customers much more than Honda’s arrow-shot design. It showed in the success of the Verna or the i20. Both Volkswagen and Hyundai had prepared well. They had petrol + diesel variants, a move that has worked wonders for them. Even as all this was happening Honda was caught in a tight spot. The City felt over-priced in the face of competition. The Honda Jazz was, well, just very expensive. The Civic lost ground when Chevrolet Cruze, a 150 HP diesel car, came in. Essentially, every Honda car in the country came under threat.

So what does Honda do? It cut prices and offered a product refresh. To give credit where it is due, HSCI did get the small car, Brio. But a small car with a price tag in the range of Rs. 5-6 lakh was always going to be a tough sell. Cars from Hyundai and Toyotalike the i10 and Liva were perceived as more value for money.

Second: what has hit Honda really hard is the Indian petroleum sector. Essentially the rise in the price of petrol from about Rs. 50 to Rs. 70 and diesel being fairly constant. Be it Toyota, Hyundai or Volkswagen, everybody had a diesel power train in its global portfolio to react to the changes in India. Honda did not; a big reason why, in the last couple of years, Honda’s products have fallen out of favour. The important question to ask here is: should Honda have prepared its India strategy forecasting changes in the Indian petroleum sector? Truth is that the change happened pretty quickly and many car companies had not planned for it. Companies like Ford and Toyota changed their strategy quickly. At Ford, production at the plant shifted from petrol to diesel cars and Toyota got in a diesel variant of the Liva and Etios much before it had originally planned. Honda had no answer.

It was only in 2003 that Honda globally came up with its first diesel engine, the 2.2 litre i-CTDi used on the Honda Accord in Europe. In 2007, this engine was replaced with a much more fuel-efficient version, the 2.2 litre i-DTEC. Too big to be in used in small- or mid-sized cars, right? Ever since, Honda engineers have been working to develop a smaller diesel engine. Late last year, at the Tokyo Motor show, Honda showcased what it had achieved. A 1596 cc diesel engine based on what Honda calls Earth Dreams Technology. This engine will first be used later this year on the European Civic.

What happens now? In India, it will take some time for Honda to get this engine into the City and Civic. Dealers say that one should expect engine options maybe in 2013. That’s because it involves quite a lot of planning to get the pricing and localisation mix right. What about engine options for the Jazz and Brio? Highly unlikely. Perhaps the only possible saviour for Honda in India in 2012 is the Union Budget. Should the government wake up and put a levy on diesel, which it is most likely to do, Honda will find some relief. If not, expect a single strategy from Honda: price cuts and discounts. And, of course, a product refresh.

The thoughts and opinions shared here are of the author.