Hero may have to play on Honda terms after break-up

Hero Group is believed to have won rights to use the Honda brand till 2014-end

As the final draft of separation between the Hero Group and Honda Motor Company gets readied, concerns are being raised on the Indian company's ability to promote and sell its indigenous products in the long term, while managing the added burden of royalty payouts to the Japanese company.

The Munjals-promoted Hero Group is believed to have won rights to use the Honda brand, considered to be one of the most trusted automotive brands in the world, on its products till the end of the term of the technical agreement, in 2014.

In return, say sources, Honda has asked Hero to refrain from any technical changes required for giving routine facelifts to the products, as they will not have been approved by the Japanese company.

More, Hero may even be restricted on introduction of new products during the next four years under the joint brand of Hero Honda, although sources say a few new products had been agreed upon for launch under the joint brand. However, Hero could launch products under its own brand.

"Now that Honda has a very strong brand following in the country, it does not want to disturb that loyalty. The focus will now shift to its subsidiary, Honda Motorcycle and Scooter India. It will become imperative for Hero to avoid making changes to its bikes, as Honda will not take any responsibility," said a source. Additionally, two of Hero Honda's biggest selling brands, Splendor and Passion, make up about 70 per cent of the company's sales. Marketing experts say the two brands are strong enough to maintain demand in the immediate future.

However, Hero Honda, which is known to give timely face-lifts to these two products to maintain consumer interest, may be restricted on altering their design and specification after it signs the share purchase deed with Honda.

"The company will have to take these two brands forward to appeal to the market. If they do that, there should not be a problem. However, with riders attached, refreshment cannot be done and to keep a bike static for four years will not be a good idea," stated a top official from a rival two-wheeler maker.

Honda Motor Company declined to provide any comments for the story, while a detailed questionnaire sent to Hero Honda two weeks earlier remained unanswered.

"Hero and Honda have been in the market for many years now and their brand seemed inseparable. But products also sell because of their own brand. Splendor and Passion are strong brands and should be able to survive on their own," said Abdul Majeed, country leader for automotive practice, PricewaterhouseCoopers.

The Hero group and Honda have been working in tandem for over two decades, trying to keep competition at bay and maintain leadership in their respective segments.

Honda floated its own 100 per cent subsidiary in India in 1999 and began selling automatic scooters.

Till October this year, Hero Honda and HMSI collectively held 57 per cent share of the domestic two-wheeler market, with Hero Honda leading in the bikes segment (60 per cent share) and Honda Motorcycle and Scooter India in the scooter segment (50 per cent share), according to Siam data.

While Hero Honda and HMSI had agreed to avoid cannibalisation by not launching products in the same segments, HMSI broke that pact in 2005 when it launched its 150cc bike, the Unicorn, pitted against Hero Honda's decade-old CBZ.

Since then, HMSI has added five motorcycles, including the stylish 110cc CBF Twister to match the Splendor, launched early this year.

Sources say Honda is keen on expanding its business in India multifold and has, therefore, put various projects on a fast track. These include development of a low-cost bike costing around Rs 27,000 and a third factory, possibly in south India.

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After 26 years, Honda to part ways with Hero