Honda’s cheapest car ever is here to make its world premiere in India! The company has sold only premium cars in India in the past – City, Accord, CR-V, Civic, Jazz – and that is not going to change. The car nicknamed mini-Jazz and codenamed 2CV is part of an Eco-car project and was developed at Honda’s Automobile R&D Center in Japan and will be manufactured in India and Thailand. Though it will be sold across all continents, its principal market will be India and other emerging markets where the company believes it can make a huge difference to its market share by bringing in a small family car.
“Our choice of India for the world premiere of this vehicle demonstrates both the importance of the Indian market for Honda and our commitment to it. With a compact body, it is designed for easy driving in the city, while it offers cabin space for five people,” – Mr Koichi Kondo, Executive Vice-President and Representative Director, Honda Motor Co.
The Signal, the Wait
During the unveiling of the concept in Auto-Expo 2010 it was stated that the car would be launched in 2011. Commenting on the unveiling of the New Honda Small Concept Mr. M. Takedagawa, President & CEO, HSCI Ltd. (Honda Siel Cars India Ltd) had said,
“This is a remarkable occasion for Honda as we unveil the Honda New Small Concept to the world. India is a focus market for Honda and the World Premier of the New Small Concept at the Auto Expo is a testimony to this fact.”
The timeline for this project has been followed pretty well and the production machinery and equipment setup is supposed to begin at the Greater Noida plant of HSCI Ltd. in August-September 2010. The training of the operators and improvisation of the layout will then follow. The car is expected to roll out and be available in the first quarter of 2011.
What it offers the Targeted Segment
Way back in 2007, Honda put together a survey and product planning team with executives from both Japan and India to observe consumer behavior. Surveys showed these were high durability, quality and reliability; contemporary style; and safety. Thus, the small car will have airbags, ABS and G-CON body standards which keep the integrity of the passenger cabin intact in an accident. To qualify as a small car, and thereby get excise duty concessions, it will be less than 4 metres in length and will have a 1,200-cc engine. An added feature will be pedestrian safety. In case of a hit, the bonnet and wiper will come down and reduce the injury to the pedestrian. But are Indians ready to pay extra for safety? The segment they are targeting, Yes. With development of the nation and induction of modern technology, the common man has started to look beyond the dream of 1lakh car. He is now looking at something with a higher standard. Similarly the segment of people initially going for 3 lakh car are going for more expensive bets and the youth is somewhat ready to invest in safety features if its not entirely out of bounds from his budget. The trick here is that these extra cost safety features should be reasonably priced.
The second learning was that almost every customer looks for value for money in his car. This gets captured in the lifetime cost of acquisition — the price tag, fuel efficiency, cost of service and spare parts, and resale value. This cheapest Honda will likely compete with bestsellers like the Maruti Suzuki Swift and Hyundai i20 and will make sure fuel effeciency does not let it down.
Pricing the 2CV
The car will have the base model below the INR 5 lakhs tag to lure the public from the volume-driven market. The fully loaded model is bound to cross the INR 5 lakhs tag and miss the volume market but that should not prove much of a threat provided they can keep up to the expectations and maintain the quality. This is comfortably below its current least expensive offering, the Jazz premium hatchback whose base model comes at a hefty Rs 6.98 lakh in Delhi.
About a week back, the Times of India had released a survey in which they had measured across all segments how satisfied the car owners were with their cars. The Winner by a decent margin was Honda City. No doubts. The car is rated as the best in its segment by a majority of the public. The survey clearly showed that Honda has a stronghold with the quality of its products and satisfaction it provides to its car’s owners. The company will look to target the same from 2CV and achieve what Jazz could not deliver in India.
What reduces its Cost?
Even though heavy investment in extensive research has been done to ensure that the vehicle suits the Indians, this will be the cheapest offering from Honda. Naturally question- How? Simple. The company is looking at buying steel and electrical components from Indian suppliers for the car to be cost competitive.
“Electrical components are something that we are still relying on imports for. We are talking to our Indian suppliers if they can make it for us. It would have to be of the desired quality,” – HSCI President and CEO Masahiro Takedagawa.
To keep the cost of spares down, the small car will have over 80 per cent local components. Also, the car will be made in India and Thailand. There is a free-trade agreement between the two countries. This will help Honda import free of duty those parts which Thailand produces at a lesser price.
“The cost of Honda spares,” says Senior VP, Marketing , “is higher than rivals but they require fewer replacements. So, over a lifetime, a Honda customer spends less on spares and maintenance. A Honda also fetches best value in resale, While other brands depreciate 50 per cent in three years, a Honda depreciates just 30 per cent.”
Honda would also focus on localisation which means India could end up being a key sourcing base for supply of parts to other countries where the car will be launched. Indications are that Brazil, Russia and parts of Europe could be on the radar.
On the likelihood of Made-in-India Honda car, Senior Vice-President, Marketing said,
“The local R&D centre started operations only in 2009. Its primary aim is to maximise the levels of localisation for the factories. It is fairly new now, but it will be involved in the development of new Honda products in the future.”
The challenge called ‘Entry’
To sell the small car, Honda plans to approach its existing customers as they believe in theirquality and service standards. Along witht that they plan to make use of Mass media this time which they had deferred in the past because it addressed a small section of the market. They plan to sell 50,000 small cars in the first year itself. This could take Honda’s market share from 4 per cent to around 7 per cent. Honda’s factory at Greater Noida can produce more than 100,000 cars per annum which is not running at its full capacity now. When it runs out of capacity there, Honda plans to start production near Alwar in Rajasthan. The sheds are ready. Honda produces engine components and body panels there, and, can start rolling out cars at short notice. In spite of these grand plans, sceptics say it won’t be a easy. It will be too late by the time Honda enters the small car market. There are strong incumbents like Maruti Suzuki, Hyundai and Tata Motors. General Motors has come out with the Beat. Next are the Volkswagen Polo and the Ford Figo. Before Honda, Toyota will have launched the Etios. Where does that leave Honda?
Add to that another huge entry barrier — the service networks of Maruti Suzuki and Hyundai. Aware of this challenge, Honda wants to ramp up its dealer network fast, especially in smaller towns, to be able to sell the car in large numbers. From 114 dealers in 67 cities, it plans to expand to 150 dealers in 85 cities in three years. This, they believe, will cover up to 80 per cent of the market. Honda, of course, will need to push cars aggressively through these new dealers. As there aren’t too many Hondas in small towns, the dealers cannot rely on service and spares for support.
Also, existing Honda dealers will have to learn to talk to a whole new set of customers when the small car is launched. The existing dealers will be have to retrained to handle higher volumes of customers of a new profile, who will in all probability come from lower socio-economic groups than existing customers.
What it means to Honda?
Though it is a mass-market brand in most countries, Honda’s market share in India is small — just around 4 per cent. If Honda wants to play the volumes game here, it needs a small car in its product portfolio desperately. Without it, Honda has no presence in 82 per cent of the market. At the moment, the City accounts for 70 per cent of Honda’s sales in India. Nowhere else in the world does a single car have such a huge share of its business! Along with that their sales have dipped in the first quarter of 2010 while they were predicting an increase of sales.
Earlier in an interview, when asked about the company’s declining sales, Honda COO had said:
“It is a matter of concern no doubt, but we are not a volume player.”
HSCI had reported 2.13 per cent fall in sales to 3,578 units in April this year. In March also, it saw its sales declining by 19.54 per cent to 5,928 units. The condition of the company is now getting a hit from the ever increasing stock in the CBU Yards(Complete Built Units). The company had suffered from the same in the past when it had to sell Civic hybrid at a loss of Rs. 8 Lakhs per vehicle. The company is suffering again but this time it has lowered the production considerably. The plant is witnessing almost 50% production-off days owing to the fact that they had recently doubled the production capacity as they were expecting increase of sales but instead the sales are dipping. The company might be considering to cut the costs by almost 50% to counter the losses. This might not lower the production capacity as a huge number of robots might be introduced to lower the costs incurred. The company might also consider revamping its production schedule to reduce the production-off days and might sack a considerable amount of its workforce to achieve that. All this makes the need for a successful small car all the more acute. The 2CV will be the biggest initiative from Honda in India and if it succeeds, it could be a game changer to Honda’s future in India.
UPDATED [Dec 1, 2010]
The Bangkok Motor Show finally revealed the nearly finished product – The Honda BRIO! The car is the refined version of the 2CV showcased at the Auto Expo 2010, Delhi. There was no declaration on the launch date but this is what the Website has to say for now –
Honda BRIO Prototype is developed with Honda’s advanced technologies, while further advancing Honda’s “man maximum, machine minimum” concept which is a basic approach to Honda car design calling for maximizing the space available for people and minimizing the space required for mechanical components.
Being developed as a city commuter which is easy-to-use even in urban areas, the Honda BRIO prototype adopts an easy-to-handle compact body (length 3,610mm x width 1,680mm x height 1,475 mm) while ensuring enough cabin space for five people achieved by highly efficient packaging.
With this vehicle, Honda thoroughly pursued the creation of an advanced exterior form, which is compact while asserting a strong presence.
Honda would like to expand the joy of mobility to more customers in India & other Asian countries through the introduction of Honda BRIO.
The last line reaffirms that Honda is very much focussed on the Emerging markets.
Let’s just hope that its chance pays off and we get another bestseller ride on the road.
Meanwhile you can look at the picture gallery from the website – Click here
and you can also read what Auto Car India has to say about BRIO – Read