By Santanu Choudhury/ Bloomberg
New Delhi: Honda Motor Co., Japan’s second-biggest largest carmaker, will start making its first small car model in India in 2009 to enter a segment that comprises three-quarters of all cars sold in the South Asian country.
The new car will be produced at a new factory in the western state of Rajasthan, Masahiro Takedagawa, chief executive officer of the local unit Honda Siel Cars India Ltd., said in an interview in Jaipur on 3 May. The company will invest about Rs3,000 crore ($728 million) on the project, he said.
The introduction of a small car will help boost Honda’s presence in Asia’s fourth-biggest auto market, where annual sales are forecast to triple to 3 million units by 2016. Honda will compete with Suzuki Motor Co. and Hyundai Motor Co. who control about 70% of India’s one-million-unit a year car market because they mainly sell hatchbacks.
“With GDP growth and an increase in individual incomes, car sales will continue to grow in India despite some issues like the rise in interest rates and oil prices,” said R.K. Gupta, who manages the equivalent of $70 million in stocks at Credit Capital Asset Management in New Delhi.
Honda will sign an accord with the Rajasthan state government on the car plant later on 3 May, Takedagawa said. The company doesn’t intend to compete with Suzuki’s Indian unit Maruti Udyog Ltd or Hyundai in the South Asian nation.
“We have no intention to compete with Maruti or Hyundai. We have several options and a couple of them we are developing from scratch,” Takedagawa said. “We are now in the premium segment, which is 20% of entire market; hatchbacks are 80% of entire market.”
The Rajasthan plant will have the capacity to produce 60,000 cars a year when it goes on stream, Takedagawa said. Honda expects to raise that capacity to 2,00,000 by 2014, he said. The Rajasthan factory, which will employ as many as 4,000 workers, is expected to see the first car rolling off its assembly line in the October- December quarter of 2009.
General Motors Corp., the world’s biggest automaker, started sales of its first minicar model in India in April and Volkswagen AG plans to introduce a hatchback based on the Polo model by 2009.
Honda currently assembles the City, Civic and Accord sedans at a plant near the capital, New Delhi. The factory, which began production in 1997, has a capacity of 70,000 vehicles a year, the number of cars the unit expects to sell in India in the current fiscal year that began on 1April, Takedagawa said.
Honda is constructing the new factory to meet growing demand for cars in the South Asian nation where only seven in 1,000 own an automobile compared with 500 in Western Europe.
The carmaker sold a record 61,327 vehicles in the fiscal year ended 31 March, a 44% growth over a year earlier. India’s car sales in the last fiscal year rose by 22% to a record 1.076 million, according to data by the Society of Indian Automobile Manufacturers.
Honda’s Indian unit made a profit of about Rs3,400 crore in the last fiscal year on sales of about Rs4,800 crore, Takedagawa said.
The company’s car sales are unlikely to be hit by rising interest rates because 70-75 % are businessmen, Takedagawa said. The appreciation of the Indian rupee is favorable for some models such as the CR-V sport-utility vehicle as a higher proportion of its parts are imported.
Honda joins Nissan Motor Co., General Motors, Volkswagen and other automakers who are expanding factories or building new factories in India where demand for vehicles is growing with an expanding economy and rising incomes. Automakers last year announced a combined investment of more than $5 billion by 2012.
General Motors, BMW
General Motors is investing more than $300 million to build a factory in the western state of Maharashtra, while Bayerische Motoren Werke AG started its first factory at Chennai in the south in March to assemble its 3-Series and 5-Series cars.
Tokyo-based Nissan is joining France’s Renault SA and India’s Mahindra & Mahindra Ltd. in building a Rs4,000 croe factory in the South Asian nation.
Tata Motors Ltd, India’s biggest maker of trucks and buses, is developing India’s cheapest car, to be sold for Rs100,000, as it seeks to convert the nation’s 45 million users of motorcycles and scooters into automobile owners.