Honda redefines priorities for India two-wheeler business

Honda Motorcycle & Scooter India (HMSI) is in reboot mode. The Japanese two-wheeler maker recently announced its intent to make an all-new 100cc motorcycle clearly targeted at rural India.

It has also decided to convert its oldest plant in Manesar, Haryana, as a global export hub while the other three facilities spread across Rajasthan, Karnataka and Gujarat will cater to the domestic market.

Rival two-wheeler makers admit they are puzzled by HMSI’s move to get into the 100cc space which is dominated by its arch rival and former ally, Hero MotoCorp. The likes of Bajaj Auto and TVS are more in the premium space as also fellow Japanese counterpart, Yamaha which also realised that there was no point competing in the price-sensitive commuter space.

Atsushi Ogata, who has been at the helm for two years now as President, CEO and Managing Director, puts this move in perspective and explains why it goes beyond just focusing on the 100cc segment. “Just after I was assigned MD of HMSI, my task was to enhance market presence in India. I could then realise that the biggest weak point was our rural market presence compared to competitors.” 

Rural connect
He was quick to figure out that while there was no question that HMSI has a large product portfolio, it still “could not connect with actual rural customer demand in terms of cost structure and pricing”. While reiterating that Honda always maintains global standard quality levels be it urban or rural — “it is just one standard”— Ogata was more than aware that “if we ignore the biggest market in India, the volume zone, it is not a good future for HMSI business”. 

He kicked off discussions with senior people in Japan to “deconstruct our cost structure” and carry out a feasibility study on how HMSI could enter the rural market. Talks also began with “many suppliers” to come up with a new cost structure which could compete with the levels of rival companies in order to “meet rural customers’ demand”. 

All this took time and it was just a year ago when the company was more or less sure that it “could finalise our destination”. The entire Honda ecosystem was now prepared and ready to enter rural India more aggressively. Right now, it has “officially started the actual development stage” and is almost ready with its plans. 

“I recently announced that we will enter this segment with a 100cc motorcycle. We still have not finalised all the development but in the near future we will launch this model,” says Ogata.

The HMSI chief then elaborates that this plan is part of a bigger strategy for HMSI. Beyond the product, the challenge lies in “how to survive in India in the future” be it in motorcycles or scooters across different user categories. 

Cost structures
“We still need to relook at our overall cost structure given the recent transition from Bharat Stage IV to VI. Apart from this reality, commodity prices are increasing, fuel prices are up and we need to reconsider our overall pricing strategy for all customers in the future,” explains Ogata. 

This puts in context why kicking off the 100cc motorcycle project was so important to HMSI. After all, it was not an easy task to carry out a feasibility study for rural India which is the “toughest market” where other rivals to Hero have tried their hardest without making much headway. 

“If we could find some countermeasures to reconstruct our overall cost structure — including our suppliers — we can stabilise our experience across all our product lineups and portfolios in the future. We can survive after 15-20 years in India and this move therefore goes beyond 100cc in terms of the cost structure issue,” says Ogata.

His colleague and Director (Sales & Marketing) Yadvinder Singh Guleria gets into greater detail on the preparatory work now underway before launching the 100cc motorcycle. While driving home the point that the rural market is large, he says the company has a good network presence thanks to its familiarity with the Indian landscape for over two decades now. 

Despite this, there are some issues that need to be resolved, adds Guleria. “We have identified gap areas in some states and regions and the team is studying them on network expansion plans.” Eventually, there needs to be a fine balance when it comes to sustainability of the network itself — appointment of new dealers is fine but the bigger priority is to ensure business viability and a win-win situation for all stakeholders. 

“There are some potential areas which we have identified where our presence and penetration is still not there as it should be,” continues Guleria. It is here that there is tremendous work now underway where HMSI is “taking very measured and cautious decisions on such expansion”. 

According to him, it is important to take a “very focused approach” and look at only those areas which “still need a brand Honda presence”. It is not as if every nook and corner of the country needs to be sprayed with the new motorcycle but this will involve a nuanced approach in building the network only in specific parts of the country.

“The other aspect is promotion where groundwork and pre-preparation is already underway. We have aligned our current network as well as our field and sales team to enhance the presence of our brand after the market study,” says Guleria. 

There are some areas where top-of-mind awareness and recall of brand Honda is definitely present among the 100-125cc user base. However, some weak pockets also exist where this level of awareness is low. “This then becomes our homework where lack of awareness must be worked upon with our field team and existing network before the launch,” he explains. 

While using a farm analogy, Guleria says this is the period of preparation which involves “putting the right manure for the field to have the right plant for the market”. This can then be nurtured well from Day 1 of the launch. Terming this the 4P approach —product, pricing, presence and promotion — he echoes what Ogata had earlier emphasised about the need to reconstitute the cost structure. 

“Both on products and assuring performance/ durability of brand Honda, we are building this strategy of awareness in weak markets. The current time will be used till the date of launch to work on these four pillars,” says Guleria.

While steering clear of the specific launch date, a broad hint comes from Ogata that it will be in line with the next round of emission regulations. This is due next year which also clearly shows that HMSI will continue to work relentlessly in filling the gaps where its presence is relatively weak.

It will be interesting to see how the company manages to take on the vice-like grip of Hero MotorCorp in rural markets. While the fact remains that the market leader is also losing share, it still remains ahead of the rest. Since the time Hero and Honda parted ways over a decade ago, the latter has been doing its best to emerge the top player but with little success.

Leaving nothing to chance
Sure, it is now the closest rival to Hero with four plants and a capacity of over six million units. Yet, the fact that it still has not managed to grab the throne could be a sore point, says an industry observer. “You can bet your last buck that HMSI will leave nothing to chance when it comes to making this 100cc motorcycle work. It will focus on offering something completely new that will blow customers’ minds.”

According to him, this could well be in the area of mileage which will be particularly welcome at a time when petrol prices are going through the roof. “I also think there will be a more premium feel with this bike so that it stands out as a top class differentiator in a space dominated by Hero,” he says.

HMSI has constantly been identified with the success of the Activa scooter but has also established strong customer connect with its Shine motorcycle. Whether this brand will be extended to the new 100cc offering remains to be seen.

Moving on with the other part of the story, Ogata says the Manesar plant is being rebooted to make it a “real global hub” for HMSI. It was the first plant which paved the way for the Activa story but the scooter is no longer produced here. 

Manesar has instead given way to a CKD (completely knocked down) assembly model where the current capacity is six lakh units annually and has the potential to go up to a million units. The CKD operations will be confined to high premium brands like the H’Ness CB 350 while the mass volume brands will be produced at the three other plants.

“The sales model and product portfolio is changing a lot,” says Ogata, which means that the road ahead could see greater production of premium commuter motorcycles and fewer scooters. While the Rajasthan and Karnataka facilities will handle both segments on a flexible line, Gujarat will remain a scooter plant. 

“Manesar is now a global hub for mainly CKD and high premium segment bikes while the other three plants have their jobs well defined,” says Ogata. The total capacity is now 5.2 million completely built up units for India and six lakh CKDs for the global market. 

“We are going to be busy with Manesar for the global markets but the other three mega plants will cater to the domestic market. After the upgrade from BS IV to BS VI, our export portfolio has spread out and is drastically increasing,” he adds. Demand is now coming in from advanced countries like Japan, the US and Europe with Korea and Taiwan due to follow in the near future. 

Unfortunately, demand has been “low and silent” in India for the last three years “because of several reasons” (the pandemic which aggravated the already existing slowdown coupled with regulation levies on two-wheelers) but the HMSI chief is optimistic that the tide will soon turn.

“Hopefully, from this fiscal, a gradual recovery of demand will happen and we can then use current production capacity by nearly 100 percent within three years,” he says.

Guleria is also convinced that better times lie ahead especially when the two-wheeler market has reached its lowest level in a decade to around 13 million units last fiscal. ”However, for the last two months, we are seeing a ray of hope and the numbers have also started supporting us. April has been good and after two years we are seeing broad smiles all around with more footfalls at dealerships,” he adds. 

Yet, there is no point getting carried away especially in such uncertain times characterised by high levels of global volatility y. “We will not do a forecast for 12 months but it looks like there will be double digit growth in April-June both for HMSI and industry as a short term forecast. There are uncontrollable factors which do not allow us to make a long term forecast,” says Guleria.

Entry-level models
After all, there are headwinds like shortage of chips and supply chain challenges but the good news is that parent company, Honda, has been supportive in looking at alternative supply sources. This could ease out the pressure on chip supplies especially in 125cc (and above) models. 

“These things will take time and supplies will ease out for some premium models over a period of time,” says Guleria. Demand for non-chip models, largely in the entry-level space, has also started rising gradually which is positive news. As he explains, India is a seasonal market where the marriage season along with harvesting now underway means that farmers will be back to buy bikes and scooters. 

“Entry-level models are important to meet this demand and they do not need chips either but we should not deny the fact that there is pent up demand for other premium/high end segments. We are trying to get customers to go in for non-chip models and there was some traction happening in April where demand increased. How long this is sustainable remains to be seen in the next couple of months,” says Guleria.

The feature was published in Autocar Professional's  May 15, 2022 issue.

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