New Delhi: Honda Siel Cars India Ltd (HSCI) has stopped taking bookings for the Jazz because of a parts shortage that has curbed production, coupled with the sudden popularity of the car following a price cut.
The supply of some key components from Japan, such as microchips, continues to be disrupted following the tsunami in that country earlier this year. Floods in Thailand could further impede any plans to step up output by Honda Motor Co. Ltd and other Japanese car makers that source parts from the Southeast Asian country.
Overseas impact: Honda imports critical components for the Jazz from Thailand, which is battling widespread floods. Photo: Bloomberg.
“The demand for Jazz has taken us by surprise. The initial production target for Jazz was much less,” said a spokesperson at HSCI. “Dealers can’t take more bookings as they have lesser number of cars allocated to them and it becomes irritating for the customers to wait as long as six months for a car.”
Honda’s local unit is a joint venture with New Delhi-based businessman Siddharth Shriram’s flagship company.
“The situation is likely to improve by the end of November or early December,” said Jnaneswar Sen, senior vice-president (sales and marketing).
Demand for the Jazz rose after prices were cut by as much as 23% in August. At least 500 units were sold in September against an average of 200 per month before the price cut. The Jazz is sold out until March and Honda’s newly launched small car Brio until January.
Given the demand, the company will start a second shift at its plant in Greater Noida next week to double production, Sen said.
“We shall be able to produce 9,000-10,000 units from next month onwards with the second shift,” Sen said.
The Greater Noida plant has an annual capacity of at least 100,000 units; it’s currently producing about half that number.
Honda set up a second plant at Tapukara, Rajasthan, three years ago with an initial annual capacity of 60,000 units for about Rs 1,000 crore but the facility hasn’t begun operations. The first phase of the facility was inaugurated in September 2008 but the company postponed its start of operations because of the slowdown. The company didn’t say when production would begin.
Honda imports critical components for the Jazz and the Brio from flood-hit Thailand.
“The situation in Thailand is very grim. It is likely to have an impact. We are still assessing its impact,” Sen said.
Thailand is a key hub for car makers, especially Japanese companies. India has an agreement—known as the early harvest scheme—with Thailand as a part of which components can be imported at lower duty rates. This has prompted many companies to use it as a key sourcing base for components.
There will be a definite impact on Honda and Toyota operations in India because of the flood, said Abdul Majeed, auto practice leader at PricewaterhouseCoopers. “But the question is to what extent and what are your alternate arrangements?”
The floods in Thailand and the tsunami earlier have forced Japanese companies to rethink their strategy, Majeed said. They are likely to set up more regional component hubs to spread the risk, he said.
There will be an “impact on production—major or minor is not yet clear. We have kits in the pipeline till 14 November,” said Sandeep Singh, deputy managing director at Toyota Motor Corp.’s Indian unit. “The quantum of impact will be clear on 29th or 30th of this month.”
Toyota cancelled production this week at auto assembly plants in Indiana, Kentucky and Canada and at an engine factory in West Virginia due to the floods in Thailand.
Honda Motor Co. postponed the launch of a new model of its Life minicar in Japan due to difficulties in obtaining parts from Thailand. It halted car production in Malaysia on Tuesday for the same reason.
Maruti Suzuki India Ltd, the country’s biggest car maker and a unit of Japan’s Suzuki Motor Corp., said the floods will have no impact on the company.
“The localization level at our plants are very high. Our dependence on Thailand is very minimal,” said R. Dayal, executive director (production engineering).
Reuters and Bloomberg contributed to this story.