New Delhi: Honda Siel Cars India Ltd’s plan to start production at its second facility in Tapukara, Rajasthan, may get delayed further as half of the capacity of its only operational car factory near Delhi is still idle and demand for its City, Civic and Jazz models has been tepid.
The Indian unit of Japan’s Honda Motor Co. Ltd, which started operations in 1997, has to sell 500,000 cars over the next three years to reach its target of selling one million units in the nation by 2015-16.
The company had inaugurated the plant in 2008 but didn’t start production because of the global financial crisis in that year.
“All of these units will be manufactured at our Greater Noida plant,” said the company’s new president and managing director Hironori Kanayama. “As far as starting operations from Tapukara plant is concerned, it depends upon the market conditions and today that situation has not come.”
Held up: Honda Siel’s facility in Greater Noida. Over 50% of the plant’s capacity of 120,000 cars a year remains unutilized. Photo: Ramesh Pathania/Mint
Mint in August 2010 reported that the company will start assembly operations at the Rajasthan plant once the full capacity is utilized at its facility in Greater Noida, on the outskirts of Delhi.
The Greater Noida plant can produce 120,000 cars a year. More than 50% of the plant’s capacity is idle because the company sold less than anticipated owing to a shortage of components following last year’s tsunami in Japan and floods in Thailand, the two countries where it sources parts from.
In addition, demand for diesel cars has surged in India because the fuel is at least 40% cheaper than petrol. Honda does not make diesel-run cars in India.
Honda Siel’s car sales have improved with the Brio hatchback selling an average of 3,500 units a month after normal production in India resumed in February.
Honda Siel’s sales fell 8.5% to 54,427 units in 2011-12 even as the overall car sales in India gained 2.19%.
The company’s facility in Tapukara is spread over 600 acres and will have an initial production capacity of 60,000 units a year.
The second plant has a state-of-the-art press shop and power train facility to make body panels and engine components for Brio, Jazz and City. The company continues to spend on the maintenance of the plant.
Kanayama, however, said the company has ambitious plans for India.
“We will see significant changes over the next two years. The vision is to make Honda the best car brand in India in the next five years. We will re-orient our strategies,” Kanayama told reporters on Monday. “We will face challenges on the way. The Indian economy is going through challenging times due to various reasons, that’s having an impact on the auto industry.”
Kanayama said that the company’s focus will be on Brio and City. “There are more models in the pipeline, but I can’t talk about them right now.”
To achieve the one million units target, the company would need to speed up plans to introduce diesel variants, apart from expanding Honda’s portfolio in the mass car segment beyond the Brio, said Deepesh Rathore, managing director of IHS Automotive India, a consultancy.
“Once that happens, there will be an explosion in demand for Honda cars,” said Rathore. “In that case, the company will need fresh capacity for Brio, which is likely to have a diesel variant and they might as well start operations in Rajasthan.”
Rathore said Honda Siel may like to bring in an entry-level sedan that will compete with the likes of Maruti Suzuki India Ltd’s Dzire, Hyundai Motor India Ltd’s Accent and Tata Motors Ltd’s Indigo. “It may also look at the MPV (multi-purpose vehicle) segment and bring in a competition to Maruti’s Ertiga,” Rathore said.