Honda axes HR-V for India, will compensate suppliers for tooling

Honda Cars India, the Indian arm of the Japanese car giant, has called off all work in progress on its new midsize SUV model – the Honda HR-V.

Also called the Honda Vezel in some key markets abroad, the five-seater SUV (codenamed 2XV), will not see the light of day in the Indian market anymore, sources have told Autocar Professional. This development comes after Honda Cars India’s multiple attempts at bringing the model to India. 

When contacted for an official confirmation, a Honda Cars India spokesperson said: "We do not comment on speculation."

The 4.2-metre-long crossover built on a monocoque chassis would have made inroads into the Indian SUV market with a 1.8-litre naturally aspirated petrol and a 1.6-litre turbocharged diesel engine to compete against the likes of the Hyundai Creta and the Renault Captur.

It is understood that the company first conducted a feasibility study on the HR-V back in 2013 soon after the SUV was launched in the US and Japan, However, it did not get the nod, given the high import content in the car which wouldn't have given Honda the scope to price it aggressively when it still had plans to bring the cheaper BR-V and position it in the Rs 10-14 lakh price bracket.

Given the exponential growth in the UV segment in India, which recorded a surge of close to 30 percent between April 2016 and March 2017, and after tasting much success with the WR-V crossover launched in 2017, which saw the company's UV market share nearly double from 3.54 percent in FY2017 to 6.50 percent in FY2018, HCIL decided to increase its efforts and started work on the 2XV project in late 2017 in a bid to bring in the MY2018 HR-V facelift to India.

According to sources, it was in 2017 that the company finally considered the HR-V seriously enough to plan its assembly together with the new CR-V and the Civic at its Greater Noida plant. For this, the company kept investing into new jigs and fixtures at the 120,000-units-per-annum capacity factory over the last two years.

Only 30 percent localisation achieved
To keep costs in check, HCIL's main focus this time was to localise the new model to the best possible extent. While it is likely that it had identified local suppliers for batteries, seats, tyres and some plastic components to achieve roughly 30 percent localisation, a level similar to the Civic, the current slowdown in India plummeted its volume confirmation to its vendors, which was recently revised from an already low 12,000 units over two years to 8,000 units, which didn't warrant a strong business case to bring the model to India, sources tell us.

Called off at the last moment
While work on the HR-V was in full swing and Honda had also conducted two trial productions of the crossover – one last year and another earlier this year – and produced around 4-5 prototypes, the company was all set to complete the final trial production of the HR-V in September, before subsequently aiming for mass production in December of this calendar year.

It is believed that the foray of MG Motor and Kia Motors into India further made a tough climb look even tougher for the Japanese carmaker, which was tasked with procuring nearly 70 percent components of the HR-V from Japan, Thailand and China. This high level of import content would have meant that HCIL would have found itself in a disadvantageous position when it came to pricing the crossover amidst the aggressively positioned newfound competitors in the Indian market.

Suppliers to be compensated
Since some of its suppliers had participated in two trial productions and had invested an early amount into developing tooling for the prototypes, HCIL will now need to honour its agreement terms and compensate them for their initial investments into the project. While there is no final word on this yet, sources tell us that the compensation could be estimated to be around Rs 20 lakh per vendor, depending upon the part.

The amount doesn’t look so big because most of the parts that were localised had commonality with the City and the Jazz, and some of the new tools that have been made will continue to produce parts for these models currently on sale in the market.

While it took way too long to decide and remain firm on its stand to act upon what could have been a rather attractive proposition for the Indian market, it looks like all plans on the Honda HR-V’s launch in India have finally been laid to rest.

The company, it seems, will now focus on the launch of the fifth-generation Honda City sedan, slated for an introduction in 2020.

Also read: Top 5 UVs – July 2019 | Hyundai Venue the new No. 1, Ertiga a strong second, Vitara Brezza slides to fourth