Honda’s Best Selling Car in India!

Yes, you guessed it right! We are talking about Honda City. Honda recently announced that it has sold over 7 Lakh copies of City and indeed it was a big feat for the marquee. We decided to review the journey of this legendary sedan and are happy to present the findings –

  • Honda has sold 7,04,857 units of City in India till date in the past 236 months!
  • It is still one of the oldest model to have survived the product life cycle in the Indian market. Even legendary brands such Maruti 800, Hyundai Santro couldn’t evolve the way City has done so far.
  • City registered its ever highest sale of 9,777 units in the month of March 2015! However, it is yet to cross the 10k/month sales landmark in the Indian market.
  • The best year for City was 2015 where it sold 82,922 units (an average of 6,910 cars/mth!).
  • City still has the highest contribution to Honda’s sales in India. For 2017 (Jan to Nov), City contributed to over 35% of Honda’s sales in India!
  • India is the biggest market for City globally! Honda sells one in every four City sedans in India.
  • Honda has launched 4 generations of the City in India.
  • The latest generation of Honda City (4th Gen) has sold over 2.75 Lakh units in 46 months and has made it the best selling City ever from Honda!

Some interesting facts about the brand globally –

  • City was originally a hatchback (compact car) and was launched way back in 1981 in Japan. And at the time of its introduction, it was Honda’s smallest car!
Global 1st Generation Honda City
  • Owing to low sales numbers globally, Honda had to retire the Second Generation compact City in the year 1994. The nameplate was revived in 1996 for four-door sedans made primarily for developing nations in Asia, Latin America & Australia.
  • From 2002 to 2008, the City was also sold as the Honda Fit Aria in Japan!
  • As on date, the cumulative sales of the City has exceeded 3.6 million units in over 60 countries around the world since the nameplate was revived in 1996!
  •  It is a compact sedan built on Honda’s Global Small Car platform, which it shares with the Fit/Jazz (a five-door hatchback), the Airwave/Partner (a wagon/panel van version of the Fit Aria/City), the Mobilio, and the Mobilio Spike—all of which share the location of the fuel tank under the front seats rather than rear seats.

Honda’s very existence in India has been defined by this model and it has stood the test of time to still be one of the best sellers in the segment. It has a cult fan following in the Indian market and yet commands one of the highest resale value amongst all brands. It’ll indeed be a difficult task for Honda to maintain the leadership category in an extremely competitive segment. As always, innovation and quality shall be the key for the same. While the next gen City is still far away (2019), we hope it continues the sales momentum in coming months.

All Four Generations in 1 Picture

Study – Japanese Car Industry

We were recently researching on the Japanese car industry and were fascinated by it. We thought that it is necessary to share on how a developed country’s Automobile Industry has shaped over years and where it stands right now. The automotive industry in Japan is one of the most prominent and largest industries in the world.

  • Japan has been in the top three of the countries with most cars manufactured since the 1960s, surpassing Germany.
  • The automotive industry in Japan rapidly increased from the 1970s to the 1990s (when it was oriented both for domestic use and worldwide export) and in the 1980s and 1990s, overtook the U.S. as the production leader with up to 13 million cars per year manufactured and significant exports.
  • After massive ramp-up by China in the 2000s and fluctuating U.S. output, Japan is now currently the third largest automotive producer in the world with an annual production of 9.9 million automobiles in 2012. Japanese investments helped grow the auto industry in many countries throughout the last few decades.

While we may assume that the likes of International Best Sellers like the Corolla, Accord or the CR-Vs are doing well in the market – In reality it’s not! Kei Cars have a majority pie in the car sales and dominate ~50% of the market share. Let’s see the top 10 selling cars in Japan for FY16 (Apr’15-Mar’16) –

You’d see that 5 out of Top 10 cars are Kei cars! 3 of the Top 10 are compact hatchbacks, 1 is a Minivan & the Top Seller is a Hybrid Fastback (Prius). See any similarity with the Indian market? – We have the Alto as the Top Seller (which is also a Kei car in Japan), Wagon R contributes significantly in sales in the Indian market (Trivia: The Wagon R has been the best-selling kei car in Japan since 2003; and in 2008, Suzuki produced its three-millionth Wagon R.). Also some of the Compact Hatches are also found in the Indian Market (Ex: Honda Fit which is named Jazz in India).

So , almost 47% of the sales in the Top 10 selling cars in Japan were from Kei cars! What exactly is a Kei car? – It’s a Japanese category of small vehicles under 660cc. They are designed to comply with Japanese government tax and insurance regulations, and in most rural areas are exempted from the requirement to certify that adequate parking is available for the vehicle. Cities in Japan are hugely populated and the Government has aggressively promoted Kei cars to curb on traffic and pollution. The crowded and narrow roads in Japan are also responsible for rise in popularity of these kei cars in Japan’s domestic market. But the concept of these kei cars – meaning light cars in Japanese – is almost unknown outside Japan. The situation could change now; as Japan’s top automakers are now willing to export the kei car technology to growing markets like Indonesia and India (already some models are doing well in Indian market).

While the Kei cars had an interesting domination in the Japanese market; we were also intrigued by the way Japanese origin OEMs commanded over 90% share in Car Sales!!! Japanese Origin OEMs (Automotive Manufacturers) include Toyota, Honda, Daihatsu, Nissan, Suzuki, Mazda, Mitsubishi, Subaru, Isuzu, Kawasaki, Yamaha & Mitsuoka. The Top 20 OEMs for the calendar year 2016  (Jan’16-Dec’16) were –

Source

Interesting Stats:

  • 13 out of 20 OEMs in Japan are Japanese Origin which contribute over 90% of the Industry’s volumes!
  • Toyota is the No.1 OEM in Japan and commands over 31% Market Share in Japan.
  • The volume Toyota does in a year in Japan is almost similar to what Maruti sells in a year in India.
  • Brands like GM, Hyundai, etc doesn’t even exist in Japan!

The story was pretty different before World War 2 – Ford and GM had factories in Japan, where they dominated the Japanese market. The Ford Motor Company of Japan was established in 1925 and a production plant was set up in Yokohama. General Motors established operations in Osaka in 1927. Chrysler also came to Japan and set up Kyoritsu Motors. Between 1925 and 1936, the United States Big Three automakers’ Japanese subsidiaries produced a total of 208,967 vehicles, compared to the domestic producers total of 12,127 vehicles. In 1936, the Japanese government passed the Automobile Manufacturing Industry Law, which was intended to promote the domestic auto industry and reduce foreign competition; ironically, this stopped the groundbreaking of an integrated Ford plant in Yokohama, modeled on Dagenham in England and intended to serve the Asian market, that would have established Japan as a major exporter. Instead by 1939, the foreign manufacturers had been forced out of Japan.

But post World War 2 and during the liberalization era too the American/German brands couldn’t make much difference. Was it due to Japanese protectionist policies? We say it wasn’t! While Japanese consumers love brands like Apple (iPhone remains the bestselling smartphone in Japan!); it is surprising why the brands like GM or VW fail to woo Japanese consumers. We figured out that more than the product, the differentiation was on the experience & relationship. Would like to highlight a case study describing the same –

The last time Shujiro Urata wanted to buy a new car in Japan, his phone happened to ring. It was the local Toyota dealer on the phone, asking him if he was thinking about buying a new car. When he replied in the affirmative, the dealer and a coworker showed up at Urata’s doorstep an hour later with two demo cars, which Urata and his wife test-drove around the neighborhood. The Uratas decided to buy a car from the dealer. The dealer also handles their car insurance, coming to their home whenever the insurance contract needed to be renewed. The Uratas bring in their car to the dealer every few weeks for a free car wash, where they hang out and talk to the employees, who have become their friends, about dog breeds and family birthdays.

The rapport may sound unusual to Americans, who are about as happy to voluntarily go to a car dealer as they are to get teeth pulled, but the relationship between customer and car dealer is a common one in Japan. “It may sound like a lot, but Japanese customers are used to this kind of service,” Urata, who is also an economics professor at Waseda University in Tokyo, told me. “It is a kind of custom that American dealers aren’t used to.” This hospitality has helped Japanese automakers stay dominant in the Japanese market.

We feel that while cars would evolve as commodities; the only way the OEMs could fight each other would be on delivering exceptional customer experiences & reliable service. The same holds very true for the Indian market as well and that’s what we recommend the OEMs too!

References: The AtlanticWiki

Fuel Split Sales – Passenger Vehicles

In recent years the trend has dramatically shifted from Diesel Cars to Petrol Cars. Reduction in Parity between Petrol & Diesel prices, Lower Cost of a Petrol Car, Easier/Cost Effective Maintenance of Petrol Cars were the primary reasons of the shift. As of today, Petrol Cars contribute >60% of overall Cars Sales. The scenario was way different a few years back where the demand for diesel cars had shot to the roof and the OEMs had to invest heavily in manufacturing of diesel engines. With the government’s proposal of shifting to BS-6 by 2020; it’ll be interesting to see how diesel cars evolve to the challenge. Also due to a lot of policy changes like NGT’s ban on Diesel vehicles over 10 yrs in Delhi-NCR has made the consumers confused to whether to purchase a Diesel Car or not. However, due to the popularity of Compact SUVs, SUVs & MUVs – Diesel Cars are holding the fort and still contribute to ~40% of overall cars sales. Let’s look at the ‘Diesel’ only cars on sale in India right now (which are primarily UVs!) –

  • Ford Endeavour
  • Mahindra’s majority portfolio (Verito/Vibe, Bolero, Nuvosport, Rexton, Xylo, Scorpio, TUV 300 & XUV 500). Only recently M&M launched the Petrol variant of the XUV500
  • Maruti’s Vitara Brezza & Nexa S Cross
  • Renault Lodgy
  • Skoda Kodiaq
  • Tata Sumo, Safari & Hexa
  • VW Tiguan

That’s why the Petrol / Diesel share hasn’t changed much in this year when compared to the same period last year –

While Petrol cars contribution is on the higher side, OEMs such as Toyota, Mahindra, Ford & Skoda have majority contribution from Diesel vehicles in the portfolio. M&M’s dependency on diesel variants remains the highest at 96%!!! No wonder the Indian OEM is concentrating heavily to launch newer electric vehicles & gain the first movers advantage. We have consolidated model wise sales of all brands and bifurcated Petrol/Diesel variant sales for clarity. We have been receiving a lot of requests from our readers on the data and are happy to present the same in this post –

Also note that – While we discuss about the share in Petrol / Diesel cars now; there is going to be a dramatic shift in infusion of Electric Vehicles. All OEMs have aggressive plans to bring Electric Cars depending on the push from Government and supporting policies.

Tata v/s Mahindra – The battle of the ‘Indian’ OEMs

In Nov’17, Tata Motors surpassed M&M as the third biggest OEM as per passenger vehicle sales (source). We have been fascinated by the recent turn of events for both the Indian-origin Passenger Vehicle manufacturers and present you a detailed report on how the OEMs have shaped itself over the years. We also love the competitive spirit these companies present and the efforts they put to improve themselves for the cause is commendable. We still remember – In August 2012 when Mahindra had pipped Tata as third biggest OEM, while addressing the shareholders Mr. Ratan Tata said “I have a great respect for what Mahindra & Mahindra has been able to do. I also have a certain degree of sadness and shame that we have let that happen”. Right on the next day Mr. Anand Mahindra had tweeted “Mr Tata’s comment is extraordinarily humble and generous”. He further added that the M&M group “takes it as a pat on the back from a big brother” and “it inspires us to work harder..”.

Mahindra & Mahindra and Tata Motors are only Indian passenger vehicle manufacturer that flourished well against the onslaught of foreign manufacturers in India. Incidentally both have started their passenger vehicle manufacturing journey with an SUV. Manufacturers such as Hindustan Motors (1954), San (1998), Sipani (1982) and Standard (1950) have gone extinct over time. While those on verge of extinction are – Force Motors (Gurkha), ICML (Rhino MUV – a Toyota Qualis rip-off) and Premiere Auto (Rio-India’s first 4m SUV). Reason – they did not invest their soul in developing contemporary product on their own.

2012 onwards homegrown Indian passenger vehicle manufactures are facing toughest challenge on home turf from the foreign manufacturers. India’s passenger vehicle export is also strongly dominated by foreign manufacturers.

India – Market Share (Volume)

India – Export Share (Volume)

Let’s see how the two Indian Passenger Vehicle Manufacturers fare:

1. TATA MOTORS

Tata Motors is finally reaping the benefits of the seeds sown by erstwhile Chairman Cyrus Mistry and Managing Director (MD) Karl Slym. Year 2013 was really bad for entire automobile industry in India, when we witnessed negative growth, for Tata Motors Passenger Vehicle Business Unit (PVBU), it was worse. Largely because of old product portfolio that started crumbling.

  • Second generation of Indica and Indigo siblings christened as Vista and Manza did not do too well because of uninspiring design and quality issues
  • Looks of Tata Safari Storme became kind of sissy as oppose to Hulk (Tata Safari) it used to be
  • Over ambitiously priced Aria landed in no man’s land
  • Sumo Grande was too quirky design for potential buyers to digest
  • Nano failed to deliver the value at bottom of pyramid

With the new MD at helm in 2012, Tata Motors started journey of trasformation called HorizonNext”, first by giving new lease of life to old products and simultenously developing new generation engine, platform and product. Transformation was not limited to products but has been around all the process, from product development and manufacturing, to sales and after sales customer experience. Efforts started showing results with Zest launch, seen in backdrop of Tata Motors past performance and not industry as a whole. In late 2014, Tata Motors roped in Mayan Pareek, a Maruti Suzuki veteran who knows the industry inside out, to lead the PVBU. Untimely demise of Karl Slym, in 2014,  has created vaccum in the organisational leadership.

New generation products from Tata Motors namely Tiago and Nexon have had got good acceptance. Hexa is doing well in comparison to its predecessor Aria but far behind segment benchmark Toyota Innova, competition will intensify further with launch of new Mahindra MPV in early 2018, which is developed by Mahindra’s US Tech center and bigger Maruti Suzuki Ertiga with in-house developed 1.5L Diesel Engine, later in 2019. Tigor is having weak numbers from beginning, due to underpowered diesel engine in the segment. Same mistake Hyundai made, with launch of Xcent in 2014, one can now see the course correction with updated 1.2L diesel power plant.

Tata Motors is also developing electric powertrain, and recently won Government contract beating Mahindra, to supply 10,000 electric Tigor. Though it would not see the light of day anytime soon in market, as consumer demand is very meek due to high total cost of ownership and unavailability of charging infrastructure. Numbers clearly shows that Tata Motors is slowly and silently phasing out older products like Indica, Indigo and Nano. Tata Motors has long way to go, considering that Maruti Suzuki and Hyundai are firing on all cylinders, wonder what else these duo can do in future with their ambitious India plan.

Tata Motors Product Pipeline

  • 4m Hatchback
  • Tiago Sport – interesting to see whether it will be mere a body kit addition or really it would get retuned engine
  • Executive sedan to take on Honda City
  • Compact SUV – Hyundai Creta rival
  • Replacement for Sumo
  • New Safari based on JLR derived platform and another more premium product to take on Toyota Fortuner
  • Electric – Nano, Tiago, Tigor

2. Mahindra & Mahindra

UV Market Share

The company which has started manufacturing UV in India in 50s and continued to dominate the segment for decades has lost the crown to Maruti Suzuki. It is still banking heavily on old workhorse – Bolero (2001) and Scorpio (2002). Both are champion in rural and semi urban Indian market. Bolero’s sale is largely guided by rural demand which heavily rely on good monsoon (rainfall). This is clearly reflected in sales figure, look at the period of 2014 and 2015 when monsoon was really bad in our country, October 2016 onwards numbers are quite upbeat.

Scorpio in India is more of a symbol of muscle power and mostly owned by politician and contractors. Sometimes I wonder, by what name Mahindra’s marketing team call this buyer segment. My observation is, the mentioned profile of buyers usually wishes to buy Toyota Fortuner (preferably white color!), but those who can’t afford, go for Scorpio, and others settle down for humble and more affordable Bolero.

XUV 500 was great success for Mahindra, but after that, none of the product succeeded in bringing desired volume. This is something Mahindra must be worried about, as sales are getting stagnant and competition is getting more intense.

TUV 300

Was it replacement for Bolero? As it has ladder chassis and RWD, which is deployed by Mahindra for rural and semi urban market offerings. Or intent was to compete against monocoque sub 4m compact SUV like Ford Ecosport? Either way positioning seems to be little confusing. Somehow tank inspired design didn’t sink well with large majority of potential buyers. Well people aspire to fly a jet fighter but how many want to drive a tank? Moreover, ride quality and refinement level is not up to the mark.

KUV 100

Mahindra’s second attempt to enter hatchback segment, with an investment of ₹ 1000 Crore. First was Verito Vibe, a notchback based on Verito (earlier Renault Logan). Since SUV is flavor of the season and very much in DNA of Mahindra, hatchback was styled as mini SUV. But side profile was not pleasing to look at, feels like design team was more inspired by frog, unlike XUV which was inspired by Cheetah. This segment is dominated by petrol engine and buyers are spoilt for choice with refined products since long time. As first attempt to build petrol engine, KUV 100 was having many rough edges. Fuel economy was dismal due to larger capacity AC and ECU mapping, and owners complained of vibrations in higher gear ratios namely 1st, 2nd and reverse. Thus numbers took a dip and Mahindra started course correction, quickly followed by an update, as KUV 100 NXT.

 e2o

Mahindra is second mover in Indian electric passenger vehicle segment by acquiring first mover Reva in 2010. They had a bottoms-up approach, unlike Tesla, which was top-down. Approach is really visionary and commendable, to provide green car but product seems to be half-heartedly made. When I took the test drive, rubber beading around the door had started coming off, rear door opening handle was not working so I have to use the other door to get out, despite battery indicator showing some juice left, it suddenly decided to drain completely and vehicle need to go back to showroom on the back of another vehicle! Safety is questionable, even top end P8 variant priced at ₹ 11.48 Lakhs doesn’t have Airbags, even as option, moreover I am not quite sure how much protection ABS-thermoplastic body panel will provide. Total cost of ownership and several other limitations like range, charging point availability, doesn’t add up well in value equation, in short it is not value for money! Is this the reason why other automakers are waiting and are not quite in haste of launching electric products in India, in order to skip early adoption hiccups and lack of infrastructure? In second half of next decade, electric vehicles will have higher prominence. So, Mahindra seems to be on right path, but it has many, many miles to travel.

Mahindra Product Pipeline

  • MPV developed by Mahindra’s American Tech center, it is benchmarked against Innova, but likely to be positioned between Maruti Ertiga and Toyota Innova. Seems quite promising with new 1.6L diesel engine.
  • Extended TUV300 with bigger engine
  • Monocoque body – 4m SUV
  • SsangYong Rexton – to be positioned above XUV 500
  • SsangYong Tivoli derivative – to take on Hyundai Creta
  • Electric – KUV100, Scorpio, Tivoli, XUV500

Global Ambition

Both the manufacturers are exporting vehicles to our neighboring countries, Africa and South East Asia. All these countries are developing or under-developed ones, but both have ambition to enter in the developed market. Here, there is divergence in choice, whereas TATA is obsessed for the UK, Mahindra’s obsession is for the US market.

Tata

2003                       Tata had an arrangement with the MG Rover of UK to sell rebadged Indica as City Rover, sales   seized when MG Rover Company went bankrupt in 2005

2008                       Tata got lucky with acquisition of Luxury car maker – Jaguar & Land Rover, which is contributing lion’s share to group’s top line and entire bottom line

Mahindra

2006                       Mahindra got into sales arrangement with US based distributor, though it never translated into sales but got into legal trouble because of lawsuit filed by the distributor in the US court

2010                       Mahindra acquired bankrupt Korean SUV manufacturer –SsangYong. SsangYong turnaround is complete now with entire new product range, some of which are jointly developed

2017                       With lawsuit settled Mahindra is finally entering the US market, by establishing a plant in Detroit. Mahindra is banking on R&D facility in the USA for all their new products, the new vehicle will roll out from the plant in 2018 and will be called Roxor.

The Way Forward

Both the manufacturers has lined up new product and engine pipeline to expand and protect the core business and simultaneously working on next generation technology to be deployed in future. Both are leveraging their acquired overseas company and global technology center based in the UK and the USA for future product and technology development. It is interesting to see how well Mahindra is able to leverage famous Italian design house – Pininfarina, which was acquired in 2015.

In coming year’s Automobile industry will soon be in a flux with new, emerging and futuristic technology. With breakthrough in digital technology, cars will become more Connected and in distant future Fully Autonomous. Also with emission norms becoming more and more stringent across the globe, hybridization, electrification and light weighing will gain more prominence. Rate of technology adoption for price sensitive Indian customer will depend on Automobile manufacturer’s ability to make such technology accessible. This opens a new window of opportunity for ambitious companies, but equally, it’s a great threat, if they lose the race of in-house development of cutting edge new technology. From market perspective, drivers of such technology could be needs of the buyer (e.g. remote vehicle management) or could be Government policies and regulation (e.g. Electric cars).

Due to digital layer, which is going to sit on the top of others, many new players will have an easy entry into the automotive domain. For example people get easily carried away with the infotainment system coming in cars over several other specification, thus non-automotive players will start encroaching the space quickly and may make several existing automotive companies irrelevant in coming or distant future.

Homegrown companies need to strengthen their core product line for near future and need to be ready with future technology. Indian buyers are moving towards more and more premium products in every segment, backed by higher ability and willingness to pay. So offering just cheap technology to serve bottom of pyramid may not work in future. Products made for bottom of the pyramid of each segment has done very badly in the past, be it Tata Nano or Toyota Etios.  To be successful in automobile industry, product and pricing need to be spot on, for example look at Renualt Duster, even with slim footprint across India in 2012, it was runaway success, though later it lost the crown.

To corroborate above just consider Tesla. Tesla is successful because people are not buying mere an electric car. They want to buy Tesla because of sleek design, exemplary performance, which is loaded with new age technology, and also happens to be an electric car. Tesla is doing what Apple did to smartphone industry with iPhone – disruption. Those who don’t change with changing technology frontier will end up like Nokia or Blackberry.

As far as aspiration to achieve global footprint is concern, these companies first need to strengthen roots in home ground first. It is pretty much evident from the companies like VW (Germany), Fiat (Italy), Ford-GM-Chrysler (USA), Peugeot- Renault (France), Toyota-Honda-Nissan (Japan), Hyundai-Kia (South Korea), who established themselves in home market first, before setting foot on foreign soil. Also one has to have some uniqueness which is well acknowledged in foreign market and public in general associate brand with, e.g. – quality, engineering, safety, performance,  new age technology, design and such. In western world, Hyundai-Kia were regarded as cheap product manufacturers in 90s, but look where they are today. One of the biggest breakthrough for them was new and stylish design language, when they set-up design center in Europe in early 21st century and hired design chief from VW Group and of course, highly improved product quality. To be globally recognized and respected brand, Indian manufacturers need to reinvent themselves, especially when technology paradigm is shifting.

(The article is written by the Newest Pundit on the team – Rohan Rishi. You can connect with him at emailrohanrishi@gmail.com)