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Honda’s supply crunch boosts competition in scooter market

Honda’s supply crunch boosts competition in scooter market

Mumbai: In February, when 35-year old Chandravadan Goriatiyal was looking to buy a scooter that he and his wife Lakshmi, 32, could use, what he really wanted was a Honda Activa.

Instead, the Mumbai-based Air India employee bought a Mahindra Duro. Reason: His sister, Narmada Suryakant Bairoli booked a Honda Activa in early October, but still hasn’t got it. “I am still waiting," she told Mint.

There are others, too, who are giving up their place in the line as Honda Motorcyle and Scooter India Pvt. Ltd, the local arm of Japanese firm Honda Motor Co., falls behind on supply, with waiting time as long as six months in cities such as Mumbai and two months in Bangalore.

In the fiscal year to March, Honda’s share of the 1.46 million scooter market dropped to 50.59% from 57% in fiscal 2009. Market leader Honda, which sells one of every two scooters in the country, was one of the first to introduce gearless scooters in India in 2001, but has not been able to fully capitalize on its first mover advantage, says a Mumbai-based Honda dealer.

“The company hasn’t been able to ramp up (production) as per the demand," he said, declining to be named because he does not want to antagonize the company.

That is a claim that Honda executives agree with only partly. Naresh Rattan, vice-president of sales and marketing at Honda Motorcycle, says the firm has more than doubled scooter production from 340,000 units in fiscal 2004 to 780,000 in 2009, and has a target of at least 800,000 in the current year.

“We?revived the scooter market and there is much more liking for our products than what we had anticipated," says Rattan, adding that demand had outpaced production.

At a Honda dealership in Bangalore, a sales executive said the outlet was losing at least 5-10% of sales to competitors because not enough scooters were available to meet demand.

“Inquiries do not translate into bookings when customers get to know of the two-month waiting," she said on condition of anonymity because she is not authorized to speak to the media.

Faced with the supply squeeze, the company is, in the interim, putting in place some productivity enhancement measures to cut the waiting time and that will see it through till a new facility in Rajasthan starts production, Rattan said.

“This is the best we can do on the production side," he told Mint.

Rival scooter makers have benefited from Honda’s predicament.

Mahindra Two Wheelers Ltd, which launched its Duro and Rodeo scooters in September after entering the market in July 2008 when it bought Pune-based Kinetic Motors Co. Ltd, has captured 4.79% of the market, from not even having a presence the previous fiscal.

“Capacity constraint at Honda is helping Mahindra gain traction," said Surjit Arora, analyst at Prabhudas Lilladher Pvt. Ltd, adding that competitive pricing due to the Kinetic acquisition had also helped.

TVS Motor Co., the second largest domestic scooter maker by sales, which launched the Wego in November to take on the Activa, has done well, too, selling 26,860 scooters in April, 43% more than in the year-ago period. However, its market share slipped marginally in fiscal 2010, to 20.47% from 20.86%.

Darshana Akshyakar, a Mumbai-based commercial artist who bought the Wego a fortnight ago, says she couldn’t afford to wait for four-six months and chose the Wego as its “body and style was similar to that of Activa".

Suzuki Motorcycles India Pvt. Ltd, which sells the Access, has also been gaining ground: Its market share grew from 7.47% in fiscal 2009 to 9.64% in fiscal 2010.

That number could have been better, said Atul Gupta, vice-president (sales and marketing), at Suzuki Motorcycles, were it not for the company’s smaller sales network and capacity constraints at its factory in Manesar, north India, which has led to a three-month wait for the Access.

“Companies like M&M (Mahindra and Mahindra) have been able to make inroads into deep rural pockets, " he said.

Mahindra Two Wheelers’ president Anoop Mathur says he expects his firm’s sales momentum to continue.

“We expect sales to be substantially better in the current fiscal," he said. Mathur is quick to add that more than the situation at Honda, Mahindra’s sales are more the function of a favourable market and the company’s products, sales and marketing strategy.

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