Honda Motor Co. has traveled a rough road in India. Although it was the first Japanese car company to come to India after foreign investment rules were liberalized in 1991, Honda's sales have been less than half of its projections.
But Honda has pushed ahead. It invested more than $100 million in a plant near Delhi in Uttar Pradesh. Honda also introduced the Honda City in 1.3-liter and 1.5-liter versions in 1998, followed last November by the more expensive new Honda City. Teruo Fujisaki, 54, is president of Honda's joint venture with Siddharth Shriram Group, Honda Siel Cars India Ltd. In a recent interview, he discussed Honda's new-vehicle plans, India's taxes and the trade-off between local-content requirements and quality. Here is an edited transcript of his remarks.
You had projected the sale of 15,000 cars in 1998, and 20,000 the following year. But you sold only 8,258 units in 1998 and 9,093 last year. What went wrong?
When we had projected those figures, our competitors were the Maruti Esteem, Opel Astra and Ford Escort. After that, many other players came and competition was stiff. So we could not achieve our original target.
This year, your sales have improved significantly - 1,003 in January, 1,004 in February and more than 1,250 in March. Never during the past two years could you sell 1,000 units per month for three consecutive months. How do you account for that?
First, consumers accepted the New Honda City. Second, the market has grown and customers' buying power has increased. Third, customers have identified Honda's quality as good and found Honda's after-sales service better than others.
What's your sales target this year?
Between 12,000 and 13,000.
You launched the Honda City in January 1998, but in November you launched an upgraded, more expensive new Honda City. What prompted you to go for the costlier cars?
Indian customers had very little choice (before the government liberalized foreign investment rules). But after liberalization started in 1991, and particularly after 1995, many new players entered the field providing customers a wide choice. After we received feedback from customers on existing models, we came to know their preference for cars with better features. So we went for improvement of features based on their specifications - both exterior and interior.
You launched the Honda City with 50 percent local content, which has now gone up to 70 percent. Doesn't that give you an opportunity to reduce prices?
Unfortunately, no. Yes, it is a fact that we have increased localization. However, the gain has been offset by appreciation of the dollar and the yen and depreciation of the rupee. Besides, the introduction of additional features costs money.
At what volume of sales can you come to a break-even point? When do you expect profits?
Between 13,000 and 14,000 units. We will try to make profits in 2001.
What are your plans for future investment?
Future investment depends on the models we would bring. If we decide to introduce a car in the small segment, we have to go for a new plant with a capacity of at least 100,000 cars. That would demand an investment of about $400 million or so. But there is a question whether we can provide the car at a competitive price. Price is the most sensitive factor. Can we make it? That's the main consideration. Honda's board in Japan has to make the decision.
Both Ford and GM entered the market with high-priced cars in the premium segment and fared very badly. Later they introduced cheaper cars. Are you thinking along those lines?
Yes, it is under study. We have to look to several factors - investment, model, volume, economic viability, price. But we are looking at it. However, we plan to launch new models in 2001, not necessarily cheaper.
What happened to your plan of importing cars from Honda's stable?
Our application is pending with the government. A decision is expected soon. We hope to import cars around June or July.
Which models are you planning to import, and what would be the price?
Accord and Civic. We will import completely built units now. Under the present tax structure, the Accord would cost $36,780 to $39,080. The Civic would cost $25,290 to $27,580.
What prompts you to import these expensive cars?
We feel there is a demand for these luxury cars. The top luxury car of Mercedes-Benz costs $57,470 and the car at the upper end of the mid-sized premium segment is priced at $18,400. There is no car in between. We want to fit in between these cars. We are confident we can sell 1,000 to 2,000 cars annually to customers of mid-sized premium cars who want to upgrade, and also to diplomats, foreign journalists, exporters, etc.
What do you think about the rules on parts localization and exports which apply to foreign carmaker in India?
We need much more production volume to increase localization and remain economically viable. For small volumes, localization is not economical. If one sacrifices quality, localization will be no problem. But we are not going to sacrifice our quality at any cost. Export of completely built units is not so easy. The exporter has to compete with Japanese, American, French and Italian cars. The cars must be of high international quality. As export of cars is difficult, almost all carmakers are resorting to component exports.
What about your exports?
We exported 20 cars to Sri Lanka last year. This year we will export 200 to 300 cars to Bangladesh and some African countries. We also are exporting 30,000 to 40,000 steering wheels annually to the Honda plant in Thailand.
What do you think of Indian taxes?
Taxes are very high and must be reduced. Lower taxes will make cars cheaper and push up sales. If the tax is reduced by 50 percent, sales will go up and government revenue will rise.
What are your suggestions for a healthy growth of the industry?
Import duties and excise duties should be reduced. The localization clause should be removed from the memorandum of association.
Should the import of used cars be unrestricted?
No. Import should be restricted and controlled. Look at New Zealand's case. It allowed unrestricted entry of used cars. All the plants closed. Honda also closed its plant. The government should be cautious and careful.
You can e-mail Correspondent Sadananda Mukherjee at [email protected]