Mumbai: Honda Siel Cars India Ltd (HSCI), which sells the City, Civic, Accord and CR-V models in the country, launched the new City in Mumbai on Wednesday (the model was launched in New Delhi on 26 September). Masahiro Takedagawa, president and chief executive of HSCI, spoke to Mint about the benefits for the company from India’s free trade agreement (FTA) with the Association of Southeast Asian Nations (Asean), the company’s compact car offering Jazz, which it expects to launch next year, and its diesel engine plans. Edited excerpts.

Jazzing it up: Honda Siel’s Takedagawa says the firm has decided not to delay the launch of the compact car. Ramesh Pathania / Mint

The Indian government has been slashing duties on small cars—from 24% to 16% in 2006 and to 12% in the current year. This makes a duty gap of 12% between small cars and sedans. That has really been putting a lot of pressure on us. Also, we had showcased the Jazz at the auto expo in January in Delhi. Since then, we have been getting a lot of enquiries and requests. We have, hence, made up our mind not to delay it further. Originally, the plan was to produce the car at our new plant in Rajasthan. But now, we plan to produce it in the Greater Noida facility and shift it to Rajasthan later. Presently, the Greater Noida facility is making three cars on a single line—City, Accord and Civic. We would look at an expansion, but it would largely depend on the market conditions and the Indian economy.

What will be the level of localization in the Jazz?

The Jazz is the same platform as the City and more than 60% of the components between the cars would be shared. The City has reached the localization level of 80% now. Jazz should have a 72% local content to begin with. The benefits of the FTA would be accrued in the pricing of the Jazz later, not initially.

Do you have any plans of developing a diesel engine for emerging markets such as India?

It’s true that both the City and the Accord have competition from the diesel offering of other manufacturers, but they (City and Accord) are leaders in their respective segments. Having said that, we do feel the necessity of having a smaller diesel engine and are seriously studying the possibility. The development from scratch takes around three years. India is so popular for diesel cars because of high price difference—as much as 30%—between petrol and diesel. India is (the) only...(major) country in the world with such price differentials. In countries such as China, (those in) Europe, and Japan, this difference is only 10-12%.

How will Honda Siel Cars India benefit from the Indo-Asean FTA?

In the last 10 years, we have developed a supplier network among the Asean countries. We have an assembly factory for each country, each component has its own unique production base. For instance, Malaysia produces the bumper, Thailand the engine components, Philippines, the automatic transmission and Indonesia, the manual transmission, and export to all the countries in the Asean region. We have hence completed our network, taking advantage of the FTA.

With India signing the FTA, we have to add it to this network as it has a huge customer base and a lot of potential. We pay a duty of 10% on CKD (completely knocked down) imports. We have decided to produce engine components at our Rajasthan facility and export them to Asean countries. The volume is likely to be 20,000 units per annum initially.

Will you be looking at paring prices of models with high imported content in the coming years?

Not really, as it would also be the function of the relation of the Indian rupee with the Thai baht. While the depreciation of the Indian rupee will be beneficial, for import, appreciation is beneficial.

We first need to look into the real execution of the FTA between the Indian and other governments. We also have to see the kind of components that can be applied for the FTA as both the governments have released a list, which we need to study. Even today, as part of the early harvest scheme (the first phase of an FTA), there are only eight components we are enjoying duty benefits on.

What role will your upcoming R&D centre (in Tapukara, Rajasthan) play?

The research and development (R&D) centre would focus on what kind of materials should be used for localizing the cars. We plan to initiate the study this year itself.

To begin with, the centre would have four Japanese and seven Indian engineers. We have an R&D centre for Honda Motorcycle and Scooter India. We expect synergies between both centres.