MUMBAI: Honda Motor spent an estimated Rs 1,000 crore to acquire 380 acres in Gujarat to set up a manufacturing unit, as the Japanese automaker bets on the long-term potential of the Indian market despite its factories now producing fewer cars than what they are designed for.
The new site is at Vithalapur, about 80 km north-west of Ahmedabad, where Honda last year opened a facility for two-wheelers. Honda Cars India bought land from individuals and completed transactions this month. The land acquisition comes as a surprise, as the company’s current facilities — at Greater Noida and Tapukura, Rajasthan — utilise just 60-70% of their combined production capacity of 2,40,000 vehicles. But with challenges of land acquisition and rising realty prices, it wants to derisk itself from future volatilities, people in the know said.
“We have finished the land acquisition recently,” Honda Cars India chief executive Yoichiro Ueno told ET. “Honda is confident of long-term potential growth of India and is committed to the region. At GDP growth of 7% per annum, it is among the fastest growing markets and Honda would want to participate in its future growth.”
Honda expanded capacity in India to more than 2,00,000 units from 60,000 in a short span of time. Part of it was in diesel vehicles, seen as a must-have until a couple of years ago for automakers to succeed here. But customer preference is shifting back to petrol as the price difference has narrowed. Automakers like Honda are sitting on underutilised diesel capacities as a result.
Honda Cars India’s sales fell 20% in the April-January period of fiscal 2017 to 1.24 lakh units, even as the market grew 9%. There was an overstocking of 24,000 vehicles at its showrooms and correcting of that during the period resulted in the volume drop, Honda said. Having the land ready will allow the company to respond quickly to improvement in demand as and when required.
“The per capita in India is set to cross $4,000 in coming years and when that happens, it brings more people in an income bracket where they can afford to buy a car and Honda wants to be ready when that happens,” Ueno said. The company is working to reinforce premium image, he said. The relaunch of the Accord sedan is a first step in that direction and it plans to bring back the Civic in the next few years.
The launch of the new City, the company hopes, will help it regain the leadership position in the mid-size sedan segment — it already has bookings for 7,500 units of the City. It will shortly enter the fast-growing crossover and SUV space with the WRV. With the focus shifting from high-volume-low-margin cars to high-margin-modest-volume products, the company, though, is unlikely to meet a goal it set in 2015, of selling 3,00,000 lakh cars in India in 2017.
Credits ET Realty