Despite falling sales, Honda eyes new plant; buys 380 acres in Gujarat

Mumbai: Honda Cars has acquired 380 acres in Gujarat to set up a new assembly line, though its two existing plants are running at half the installed capacity of 2.40 lakh units as its sales fell over 25 per cent last year.

Honda has an assembly line each in Greater Noida near Delhi and Tapukura in Rajasthan with a combined capacity of 2.40 units. But in 2016, its sales plunged to 1,58,658, a steep 25.3 per cent decline from 2015 level when it had sold 2,12,372 units. Accordingly, its market share fell to seventh slot from fourth.

With this running rate, it is highly unlikely that Honda will be able it to meet its earlier target of selling 3,00,000 lakh cars in the country in 2017. "We have just completed acquisition of around 400 acres, to be precise 380 acres, at Vithalapur in Gujarat, though we have no immediate plans to set up a plant there.

We have bought the land so that as and when we finalise the third plant, we have the land ready," Honda Cars India chief executive Yoichiro Ueno said. He said this is done as they are confident of the long-term potential of India and are committed to this market.

With GDP clipping at 7 per cent, there isn't any reason to be otherwise, and they want to participate in this growth story. Ueno, however, refused to offer the price they have paid for the land parcel. But the company sources said they have paid around Rs 1,000 crore for the land parcel.

Honda Cars India director and senior vice-president Raman Kumar Sharma told PTI that excluding this latest investment, the company has pumped Rs 8,000 crore into the country since its entry in the 1990s.

Sharma said they bought the land from individuals and completed transactions earlier this month only and bought the land considering the challenges of land acquisition in the country coupled with rising realty prices, it is way of derisking future volatilities.

Vithalapur is about 80 km northwest of Ahmedabad, where Honda's two-wheeler subsidiary Honda Motorcycle and Scooter India runs the world's largest scooters only plant with a 1.2 million annual capacity, opened last February.

Honda expanded capacity to more than 2,40,000 units from 60,000 in a short span. A large part of the additional capacity was in diesel during the peak of diesel demand a couple of years ago. But Ueno said they will go slow on diesel now as customer preference have already shifted back to petrol following narrowing of the fuel price differences.

Ueno attributed falling sales to the overstocking of around 24,000 units at showrooms on average as the company was planning to discontinue the existing model of its warhorse city in the run-up to the new launch earlier this month.

Over the last weekend, the company said it had received as much as 5,500 bookings for its new City within 15 days of launch and is bullish on the prospects as it attempts to be a premium player here again, and this will also see the company relaunching the Accord and the Civic sedans shortly.

With the Maruti Ciaz picking up steam, the City was relegated to No 2 slot since the past few months. But Honda said this was primarily due to destocking it has been doing as it was preparing for the new version.

While the City was averaging around 6,000 units till recently, the Ciaz for the first time overtook it by selling 5,360 units. "We don't want to be known as a cheap or mass brand. We want our brand to be known as a premium car brand.

Our focus will be the upper segment going forward. We've decided to maintain our traditional positioning, which is a bit more premium though not luxury. So, we'd like to target customers a bit different from others in terms of products, service, and customer experience," Ueno said.

Ueno said the City sales declined in the past few months, because the company was in a phase out stage as it was preparing the new fourth general version of the City.