Japanese car maker Honda Motor Company is planning to use more local parts in its models that sell in large numbers, or volume models in industry parlance, helping it price them more competitively, at a time when the company sold 13% fewer cars in April-August 2011 over last year. Honda is aiming to have 100% local parts in its volume models including small car Brio, City sedan, and Jazz, a premium hatchback in the coming years.
This will lower costs and insulate the company from currency fluctuations, says Takashi Nagai, president and chief executive officer, Honda Siel Cars India Limited. Honda Siel Cars India Limited, is a joint venture between Japan?s Honda Motor and Siel Limited, a Siddharth Shriram Group company. At present, the company imports 20-30% of the parts of its volume models from countries like Thailand, Japan and Indonesia. During April-August, Honda Siel Cars India Limited sold 19,433 cars in India.
The Tapukara plant in Rajasthan will play a key role in the company?s localisation drive, Nagai said. The localisation efforts are being supported by the company?s research and development team in Japan, and the manufacturing and purchasing teams in India, he added.
Honda Siel Cars India is setting up a vocational training institute to build up a battery of technicians and engineers in the field of automobile and supply chain management. In a letter to the finance ministry seeking government permission for setting up the institute, Honda has stated that there is a large need to upgrade manpower skills. Both employees of Honda as well as selected candidates from outside the company would be imparted training at the institute proposed to be set up in Rajasthan, which will feed the trained personnel to its new factory there.
The localisation of Brio, which was launched on September 27, is around 80% and the company plans to take it up to 90% by end this year. Other models like City has 70% and Jazz 76% localisation, respectively. ?Our priority is Brio at the moment and its experience will be implemented horizontally on other volume models as well,? Nagai said.
?The assembly plans of the company have been delayed at the Rajasthan and hence the plant will play a huge role in localisation of parts at present,? said Ammar Master, manager, JD Power Asia Pacific, based out of Thailand. ?The new generation Civic and City are expected to come out of the Rajasthan plant,? he added. The Rajasthan plant is expected to have an initial production capacity of 60,000 units per annum, with an investment of about R1,000 crore, once the assembly operations start. Currently, the company has press shop and powertrain assembly line at Rajasthan.
In 2008, Honda had said that it was delaying the assembly at the Rajasthan plant and would start only after the Greater Noida plant has been completely utilised. The Greater Noida plant has an annualised capacity of 1 lakh units and can go to 1.2 lakh units per annum. But the company is utilising much lower than the 1 lakh unit at the moment. All the volume models are made at Greater Noida plant.
Meanwhile, Honda?s biggest challenge remains the absence of diesel technology, which Nagai said was still three years away. ?Knowing that they do not have diesel to woo the market, Honda needs to be best in the value it offers to its customers,? said JD Power?s Master. Abdul Majeed, auto practice leader at PricewaterhouseCoopers agrees: ?Honda will have to have strong product strategy and distribution network. They would have to look at bringing down cost to remain competitive in the crowded market.?
Recently, Honda Siel cut the price of Jazz by R1 lakh and of Honda City by R60,000, a step which it said was possible with the cost advantages brought in by the ongoing localisation of parts. Even the pricing of Brio, between R3.95 to 5.10 lakh, has been very competitive.
