Honda unfazed by slowdown, starts new investment with second Indian factory
Even as most carmakers in India are shutting down factories and reining in output, Japanese car major Honda Cars India Ltd. (HCIL) announced on April 2 that they were making an investment of R2,500 crore (US$450 million) to put into operation its second car factory at Tapukara in Rajasthan.
The 120,000-unit-a-year factory would be for Honda’s line of diesel cars, beginning with the entry-level sedan Amaze to be launched in April. At least four more cars — a diesel variant of its best-selling sedan City, premium compact car Jazz and a compact utility vehicle and a sports utility vehicle — will follow in the next three years. All these cars will have Honda’s new 1.5-liter diesel engine.
About 30-40% of this capacity is being earmarked for export. In India, the diesel engines will be launched with a 1.5 liter capacity in the Amaze, while in Europe the engine is slightly bigger with a 1.6 liter capacity, but shares most parts.
“So far Honda has operated in only about 10% of the Indian passenger car industry, but now we are all set to expand our business in the country with our line up of diesel cars,” said Hironori Kanayama, president and CEO of Honda India. “The universe that we operate will increase to almost 50% of the total passenger vehicle market over the next few years.”
Honda is the only car manufacturer that does not have any diesel car in its portfolio in India. The surge in demand for such vehicles, often at the same price as petrol cars, has cost the company dearly in the past. Its bread-and-butter model City, for example, lost out to the Hyundai Verna in the mid-size sedan segment simply because it lacked a diesel powertrain.
“In view of the rapid expansion of diesel power in the country we plan to introduce diesel engines in all new models,” said Yoshiyuki Matsumoto, president and CEO, HMIC. “Competitive new models armed with an excellent diesel engine will create a huge business opportunity.”
There is one problem with this plan, however. The Indian government’s decision to slowly decontrol the price of diesel, along with a recent softening of petrol prices, lends some credence to the view that the golden run for diesel cars may be at its end.
Honda also plans to double the export of various engine components to markets like Europe, Japan and Thailand to about R500 crore (US$90 million) in Fiscal Year 2014.
“Apart from Japan, India is the only country to supply diesel engine parts to Honda’s global operations and the capacity here is far more. We are already exporting parts to the UK for models sold there and this will go up further,” said Raman Sharma, senior vice-president and director at Honda Cars India.
Honda already exports petrol engine parts such as cylinder head, cylinder block and crankshafts to its Asian factories from India, and the diesel engine parts are a new addition to this list. Growing exports will help it offset the high import cost of various components and guard against foreign exchange volatilities. In fiscal 2013, Honda’s component exports from India stood at R242 crore (US$43.6 million).
At present, localization of diesel engine parts stand at around 60%, but the company expects this to go up to 90% by next year.
(April 3, 2013)
