For more than a decade, Honda’s City was a sign of upward mobility in India, helping the Japanese automaker grow in a market dominated by small cars. Then it started losing momentum.
The mid-sized sedan is still the leader in its category but faces competition from the Hyundai Motor India Ltd.’s Verna and Maruti Suzuki India Ltd.’s Ciaz. The bigger problem is that Indians don’t love sedans as much. Compact sports utility vehicles dominate the sales in the world’s fourth-largest automobile market.
With automakers, already battling a slowdown, yet to fully recover from the pandemic that decimated sales, Honda Cars India Ltd. last month announced that it will shut down its oldest plant in the country. The Japanese company will discontinue the Civic and the CR-V, its best-selling model worldwide, in India.
“They had a strong brand pull with Honda City,” Hormazd Sorabjee, editor at Autocar, told BloombergQuint over the phone. “Although the City continues to do well, Honda missed the opportunity to build brands for their other products, especially at the higher end.”
The first City rolled out in 1998 and quickly eclipsed prevailing models such as Ford Escort and Opel Astra. It became a sign of affluence in an India reaping gains of the 1991-92 liberalisation. The City gave a brand recognition to Honda like the Alto to Maruti Suzuki and the Santro to Hyundai. But unlike its rivals, now India’s two largest carmakers, Honda failed to build a portfolio successfully.
In the last four years, Honda’s market share fell nearly by half to about 2.9%, according to data shared by Jato Dynamics. From No. 4, it has dropped to rank eighth behind Renault and new entrant Kia Motors.
When Honda entered India more than two decades ago in partnership with Usha International, the market was in its very early days. And the company was able to bring a formidable lineup of the City, Civic, CR-V and the Accord.
As it faced competition about a decade later, Honda tried to expand into other categories, first launching the Jazz compact sports utility vehicle in 2009. When that failed because of pricing, Honda unveiled the Brio hatchback in 2011.
Honda started to lose its way when they dabbled with low-cost architecture with Brio, Sorabjee said. “They tried to go too mass. I don’t think they understood what it meant and didn’t know how to make those products.”
With Maruti Suzuki and Hyundai not ceding any ground in this competitive segment, Honda killed the Brio.
The City, however, remains its best offering despite the challenge from the Verna and the Ciaz. And the Japanese major launched a strong competitor in the Amaze compact sedan.
Still, there’s little solace in these numbers as the share of sedans in India’s auto market— three million units a year—is shrinking. And the sports utility vehicles, mostly compacts with higher ground clearance—unlike the powerful mini trucks in other markets—now command nearly 40%. After its initial failure with the Jazz, Honda has not been able to crack this category that Indians love now.
In the last two-three years, the carmakers that have grown are the ones that have built a solid SUV portfolio with a competitive price of around Rs 10 lakh, and somewhere Honda couldn’t even make a dent, Puneet Gupta, director of IHS Markit automotive sales forecasting, said over the phone. And while Honda is still banking on crossovers like WR-V or hatchbacks for the mass market, he said, “BR-V was a big flop as it was not tuned with what the competition was offering like Maruti’s Ertiga.”
Honda, according to SIAM wholesale data, hasn’t dispatched any BR-V between April-November 2020.
According to Gupta, Honda lacked a proper product plan for India. They had a large loyal customer base that would have loved to upgrade from the City, he said. They needed what Tata Motors Ltd. did with the Harrier and Mahindra did with the XUV 500, but that didn’t happen.
Nikunj Sanghi, chairman of Automotive Skills Development Council, and former head of auto dealers’ lobby said, “Product strategy went wrong for them because they had a wonderful portfolio, but why they didn’t become price competitive and aggressive, I fail to understand.”
Gupta said Honda should have made India an export hub like Hyundai and Kia, helping build economies of scale.
Honda acknowledges the challenges it faces. Rajesh Goel, head of sales and marketing at Honda Cars India, said over the phone that the decision to shut its one plant and discontinue the CR-V and the Civic is an indication that “good business is about making hard decisions rather than soft-peddling”.
“Consolidating production at the Tapukara (Rajasthan) plant to us is the strongest intent statement by Honda that ‘look, we are in India, a long-term potential market, we intend to be playing in this playfield as long as we can’.” The intent, he said, is to gain operational efficiency and to become risk-free and sustainable.
The company is working on an SUV line-up but he declined to reveal details. Honda Cars India, he said, is working to increase the exports from India, including to newer destinations.
Sanghi said consolidation is a right move and the company now needs to review product strategy. Or, as Gupta puts it, Honda Cars has to draw up a plan to build products for India. Something that Hyundai has done well.
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