Honda Motor Company has said that bike sales in India were impacted in the April-June quarter to the tune of nearly 50,000 units.
“In India, we have been installing new parts to comply with environmental regulations since April, and the semiconductors related to these parts have had a slight impact, resulting in a decrease of about 50,000 units compared to last year. However, we can see a plan to recover from the second quarter onward, and we expect to earn a solid volume in India,” Eiji Fujimura, Executive Officer and CFO, elaborated at an investor and analyst session on August 9.
On a consolidated basis, motorcycle sales fell by nearly 100,000 units mainly due to the “decline” in India and Vietnam. “As for Vietnam, there are signs of a slowing of the economy. We are very concerned because it is our largest revenue source, but on the other hand, motorcycle sales are growing in Thailand, Europe and the US, so we hope to somehow cover this in terms of revenue,” added Fujimura.
Wholesale numbers of motorcycles for the April-June quarter show that Indonesia is the top market for Honda with 1.11 million units, up 163% from the same period last year. Clearly, consumer sentiments have improved in the country and it continues to enjoy the status of being Honda’s favourite hunting ground.
India, on the other hand, has had a tally of 9.52 lakh units in this quarter. Had the chip crisis not occurred leading to a fall of 50,000 units, the overall numbers would have been a little over a million units. Honda has already said that it will make up lost ground in the July-September period which means that India may have a chance of overtaking Indonesia.
Worry In Vietnam
“India, as I mentioned earlier, experienced a semiconductor supply shortage, but we are now seeing a little bit of a prospect so that we can take firm action afterwards,” said Fujimura. Vietnam, Thailand and Brazil follow some way behind with wholesale motorcycle numbers of 5.06 lakh, 3.95 lakh and 2.71 lakh units respectively. According to the company, Vietnam’s low output can be attributed to the impact of the recession.
“As for Vietnam, we are a little more cautious. As we always say, Asia and Brazil are our strongest markets for motorcycles, accounting for the majority of our volume and revenue. These areas are naturally very volatile. We would like to maintain the volume target for the current fiscal year, and while profits in Vietnam will decline, we hope to somehow make up in other areas,” he continued.
According to him, Honda would ideally “like to do well” in Thailand, Europe, and the US where profit margins per unit are high, as well. “We have not yet raised our flag in Vietnam, and we would like to do our best (in Vietnam) as well,” said Fujimura.
Honda will be banking on India to report high volumes by virtue of the fact that it is the largest two-wheeler market in the world. Even while overall industry volumes have fallen in recent years, thanks primarily to additional levies on safety and technology which have deterred customers, things are slowly limping back to normalcy.
The Japanese automaker, however, had industry observers puzzled when it decided to throw its hat into the 100 cc motorcycle space, which is dominated by its former ally, Hero MotoCorp. It launched the Shine 100 commuter bike in March this year and made known that it was targeting annual sales of 300,000 bikes initially before doubling it in the next phase of growth.
The top management of HMSI (Honda Motorcycle & Scooter India) had justified entering this segment since it was of the view that India’s rural markets remained a weak link for Honda and the only way to plug this gap was to have the right product in place. The key was in connecting with “actual rural customer demand in terms of cost structure and pricing”.
Fixing Costs In India
As the management put it at that point in time, “If we ignore the biggest market in India, the volume zone, it is not a good future for HMSI business”. The Shine 100 was actually part of an overall strategy to relook at its overall cost structure following the transition from Bharat Stage IV to VI in April 2020, the time COVID hit the Indian landscape and threw the economy out of gear.
Beyond BS VI, Honda was also aware of the reality of rising commodity and fuel prices which (according to Atsushi Ogata, its then MD, President & CEO) meant that it was imperative to “reconsider our overall pricing strategy for all customers in the future”.
This put in context why kicking off the 100 cc motorcycle project was so important. After all, it was not an easy task to carry out a feasibility study for rural India which was the “toughest market” where other rivals to Hero had tried their hardest launching competitive products but 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 line-ups and portfolios in the future. We can survive after 15-20 years in India and this move therefore goes beyond 100 cc in terms of the cost structure issue,” Ogata had said.
Discussions then kicked off with senior people in Japan to “deconstruct” the 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”.
Taking On Hero
Ogata has since moved to China to take up a new assignment at Honda and his successor will now need to take the HMSI growth story forward. The success of Shine 100 is doubtless a critical part of this strategy and this will be particularly challenging when rural markets have not still come back on track. On the contrary, sales of premium motorcycles are on a roll, which is a reflection of changing customer tastes coupled with the reality of higher disposable incomes in urban India.
HMSI remains the top challenger to Hero and would ideally like to race its way to the top except that it has not managed to do so over the last decade or so when the two parted ways. The Japanese automaker has been on overdrive with new plants and additional capacities but its former Indian ally has been comfortably ahead except for some stray months when HMSI has had the lead.
Shine 100 has been clearly positioned to take on the might of Hero Splendor and its success will play a big role in the leadership stakes. The million dollar question is when and if this will happen since Hero is clearly in no mood to give up its Number 1 position in a hurry.
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