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Can Honda cars resurrect its fortune with the premium shift?

As the Honda Cars fixes its entry-point with Amaze (price starts at Rs 6 lakh) and has no play in the market below this, the carmaker is much in-line with changing market dynamics which are moving up, so rapidly. The average car price in the country has moved from Rs 5-lakh to Rs 7.6-lakh in the past decade. However, limited product lineup and almost absent from more than 70 percent of the market including the fast proliferating compact SUV, will Honda Cars revive itself with a strategy restricted to the premium segment, Nabeel A Khan finds out.

New Delhi: Japanese carmaker Honda Cars India (HCIL) emerged as the third-largest carmaker in July 2014 with monthly volumes rising 40 percent to 15,709 units, overtaking homegrown player Mahindra & Mahindra. It had hit the best performance when it’s market share in the Indian passenger vehicle almost screeching 7 percent in April-June FY’15.

It was achieved by imitating segment leaders like Maruti Suzuki India and Hyundai Motor who had narrowly and keenly focused on the mass market. The carmaker’s short-lived success can largely be credited to a shift in focus to the mass market from the premium segments that started with the debut of Brio hatchback launch in September 2011, but ideally gained customer’s fancy with compact sedan Amaze- it’s diesel model made specifically for India with an all-new 1.5-litre i-DTEC engine – introduced in April 2013.

Soon after this, City and the Amaze witnessed strong successes with monthly volumes in the upward range of 7,000 units. Thereafter the company launched Mobilio MPV in 2014, which had the same City diesel engine and then came also in the BR-V, yet another attempt to woo the value proposition of money-conscious Indian consumer.

Even as the volumes were up, but, Honda brand loyals who had engraved a premium and class image of the carmaker with the almost impeccable popularity of Honda City sedan could not take the value for money products like Mobilio, BR-V and Amaze. Industry experts and buyers saw this, especially the change in the material, design, and overall quality, very much unlike any of the previous Honda’s sold in the country.

Eventually, Honda Cars’ market share in FY’2020 slipped to 3.7 percent from 5.5 percent in FY’2019, and in June the carmaker was one of the worst performers as its dispatches fell by 87 percent to 1,398 units and market share in the first quarter of the FY’2021 stood at a dismal 1.1 percent.

However, Gaku Nakanishi, President & CEO of Honda Cars India says the decline was mainly due to the nonavailability of BS-VI compliant vehicles. “We wanted to start BS-VI production by March-end but due to lockdown it was completely stopped and we could resume production only after June 15,” he said. Indian government leapfrogged from BS-IV to BS-VI from April 1, 2020.

The carmaker has phased out Mobilio, BR-V, probably with the shortest stint by any production in the Indian market. While Brio, first, launched in September 2011 and got its last update in 2016 was also phased out after dismal sales performance.

After a few years of abortive attempts to gain a foothold in the mass segment, the Japanese carmaker is clear and committed to staying away from any volume aspirations by mending its strategy by reversing it to the time of glory it achieved with Honda City.

“We will continue to provide premium products and premium brand image to the customers in India.” Gaku Nakanishi told ETAuto in an interview. The company will not bring any new product below Amaze which has a starting price of about Rs 6 lakh.

This comes in line with another Japanese carmaker Toyota’s last year’s plans to exit entry-level and mass segment products like Etios Liva hatchback, Etios sedan and Etios Cross –with the implementation of BS-VI.

“The City is what makes the Honda brand in India. No other product has been such an ideal combination of their legendary edgy styling, latest technology, features and the right price. So products with feature-rich premium comfort and performance is the only way the Honda badge can find its own space in the Indian market,” says Avik Chattopadhyaya, an industry observer and marketing, and branding expert.

Rightly so, to proclaim the premiumness the carmaker is not offering any strip down variants on its products. Started with WR-V, now the 5th generation Honda City also has only fully-feature loaded variants available in the Indian market. While the 4th generation Honda City will continue to exist in the market, making it an exceptional event by any carmaker in India.

With the increase in the cost of vehicles with the introduction of BS-VI and the massive success of two new entrants, Kia and MG with over Rs 10 lakh price points give an assurance to Honda’s strategy to move to premium. Also, the average price of a passenger vehicle in India has surged from about Rs 5 lakh in 2010 to Rs 7.6 lakh in 2019. The company’s Amaze and Jazz may fit well within the new average price. The carmaker has slatted its new premium hatchback Jazz for festive launch.

According to ETAuto research, cars priced between Rs 5-10 lakh contributed about 32 percent 10 years ago and now contributes 57 percent to the total PV volume in India. The contribution of cars priced above Rs 10 lakh jumped three-fold in the last 10 years to 15 percent of the total sales.

Interestingly, despite all the slowdown in the automobile market, the performance of compact SUVs has remained robust. SUV’s share of about 8 percent ten years ago has now jumped to 28 percent, but this segment has remained the weakest point for Honda in India even though a tiny share of SUV buyers might have come to its fold via WR-V crossover.

The other missing point with Honda is its extremely tiny product portfolio of three products – WR-V, City and Amaze catering in the mainstream market. Civic and CR-V have a very tiny market in India.

It has virtually no products to cater to more than 70 percent of the Indian passenger vehicle market. The carmaker needs to seriously think of expanding the product portfolio to resurrect the sliding market presence in the country as its best selling car Honda City also lost the crown to Maruti Ciaz and the Hyundai Verna.

In a Post Covid Market

The other major question comes with Covid-19 forcing people to conserve every penny and probably downgrade to a lower segment, forcing carmakers to deal with this new change.

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