Brakes on Civic, CR-V car models: How Honda lost the plot in India

Last year, when Honda re-launched the Civic, its popular sedan, after a gap of six years, Rajesh Goel, head of Sales & Marketing at the Japanese car-maker’s Indian subsidiary, said the iconic model would, along with compact sedan Amaze and premium SUV CR-V, beat the growth rate of its peers in a slowdown year.

But then the pandemic struck, and the two-month lockdown worsened things. And today, Honda announced that it was closing its oldest plant, in Greater Noida, and also discontinuing the Civic and the CR-V in India.

“It’s a perform or perish signal from the headquarters,” says a former company executive of the move that comes from a company that is considered a sumo wrestler among automakers across the globe.

Honda, which is shifting its entire manufacturing facility to Tapukara in Rajasthan, however, says this will help it to rationalise cost and have a better shot at profitability.

“In no way should this be seen as a defensive move,” says Goel. “Despite an uptick in sales in the last three months, the current market conditions remain unpredictable for the industry at large. The impact of Covid-19 has pressed us to relook at our operations, and to achieve the same, the company has decided to consolidate its manufacturing operations by making the Tapukara plant a unified manufacturing base.”

Industry experts, however, say its inability to respond quickly to changing market dynamics has slowed Honda’s progress in India. Whether it was about switching from diesel-powered models to petrol-powered ones or responding to customer preferences, Honda has taken longer than its rivals to react.

India’s passenger vehicle industry has seen a steep 35 per cent decline in turnover during the first half of FY21. But for Honda, the alarm bells ring louder. Its market share has consistently declined and at 3.5 per cent at the end of November, it stands seventh in the pecking order, behind its global rival Renault and new entrant Kia Motors.

When Honda entered India in 1997, competition was limited and market leader Maruti was still a sluggish public sector entity. This allowed Honda to piggyback on its parent’s cut-throat technology and launch models that had done well globally. It worked. “Cars were still an aspiration and not a necessity, and people who bought them didn’t mind shelling out a bit more,” says Nikunj Sanghi, past president, Federation of Automobile Dealers' Association (FADA). Honda had just four models in its lineup: City, Civic, CR-V and Accord. But each of these was a leader in its segment.

Early 2010, Honda decided to gamble with the mass market segment. It launched premium hatchback Jazz, pitching against a rejuvenated Suzuki-controlled Maruti's highly successful Swift. The Jazz was priced Rs 3 lakh more than the Swift. And it flopped. Honda re-launched the Jazz in August this year, but sold just 633 units against Maruti’s Baleno (17,872 units). “Honda never really cared to play the mass market game in India, which to my understanding is a mistake. To be successful in India, you have to be present strongly in the mass market small-car segment,” Sanghi says.

Goel though defends the strategy of not having a small-car in the stable “Every company’s strategy is different. Our R&D team has done a very good job with the Amaze, which is quite well-preferred by first-time buyers. As a company we aren’t changing our strategy in regards to future product-related investments.”

Timing and luck also went against the company. Just when it decided to enter the diesel segment, the government deregulated diesel prices, gradually taking away the advantage of the wide difference between diesel and petrol prices. To this, Goel says, “We can say a lot of things by taking one step back in history, but we couldn’t have done a crystal ball gazing then.”

However, over the last three months, the company has enjoyed decent popularity. It registered sales of 9,990 units in November 2020 — an impressive growth of 55 per cent over last year. Earlier this year, Honda introduced the new-generation City. And in November, it recorded highest volume sales in the past 21 months. Goel says the City now commands a 44 per cent market share in its segment.

However, beyond the City — and with the Civic now discontinued — there seems to be no spark in the Honda stable now.

“Products that have done well in developed markets cannot be replicated in India. To be successful here, one has to respond to local choices and launch products tailored-made for India,” S S Kim, CEO at Hyundai Motors India, had recently said to Business Standard while explaining why marquee brands like General Motors and Harley-Davidson found the ride tough here.

Perhaps Honda might yet learn a trick or two from Hyundai’s books.