The summer of 1998 was when Zubin Ponnappa, owner of Mumbai-based performance tuning company Zubinn Design, had opened up his 1.5 litre Honda City for the first time to rejig the engine for more power. A self-confessed motorhead, Ponnappa expected some trouble with the engine, since the car had just then been launched in India. But, he recalls, still pleasantly surprised, “The reduction pistons, the connecting rods, the rocker arms ... all weighed the same, down to the last gram.” To those who don’t have motor oil in their veins, this translates to components that were made with such precision that there wasn’t much to overhaul—just a little tuning, but none of the precision grinding needed with other cars.

Ponnappa says that even after 100,000 km, there won’t be a scuff on a Honda car’s engine. That’s a big deal, especially in relation to what is ultimately a bunch of moving parts. Other users are equally positive about the cars; Honda drivers claim that they often try to restart the engine when idling at traffic signals, because it is so quiet and smooth, and they forget it’s ticking. That sort of feedback, coupled with low maintenance costs and better-than-average fuel efficiency, gives Honda an almost hallowed status. Word-of-mouth advertising propelled the Honda City to lead in the mid-size sedan segment since its launch in 1998.

All was well while customers showed a preference for petrol cars. But now, in a market that has shifted to diesel, Honda is conspicuous as the sole car maker without a diesel model. The price of petrol has shot through the roof (it is nearly Rs 75 a litre now in some cities) and costs around Rs 25 more than diesel. Other car manufacturers saw this as a window of opportunity and were quick to take advantage of it; about 47% of the 2.5 million passenger car market is accounted for by diesel cars. And Honda has no share. The Japanese company is now trying to claim some of this market. “Where we’ve not got it right, we’ve been quick to learn from our mistakes,” says Raman Kumar Sharma, senior vice president and director, general affairs, Honda Cars India, a subsidiary of Honda Motor Company.

And so, Honda has announced the launch of its first diesel car in India this year. The 1.5 litre compact sedan Amaze will be manufactured at Honda’s new factory in Tapukara, Rajasthan, and the company is so sure of its market that it has plans to scale up manufacturing by almost 500% to 300,000 cars in the next few years. Honda plans to do this both at Tapukara and its other factory in Greater Noida, Uttar Pradesh.

FULL THROTLE: A Brio being manufactured at Honda’s factory in Greater Noida, Uttar Pradesh.
FULL THROTLE: A Brio being manufactured at Honda’s factory in Greater Noida, Uttar Pradesh.

But is it too late for Honda? The other Japanese car company, Toyota, sells eight models in India, seven of them with diesel versions, and gets 80% of its volumes from diesel. That’s seen its market share nearly double from 3.3% to 6.2% in the last five years, while Honda’s has stayed at 3% during that period. (Both manufacturers had seen production and sales suffer in 2010 and 2011 because of the floods in Thailand and the tsunami in Japan.) Hyundai’s diesel sales growth accounts for 75%, thanks to the Verna, i20, and Elantra, much higher than the industry average of 35%. Even newcomers such as Renault-Nissan and Volkswagen, which set up shop in India almost a decade after Honda, have diesel car models. Volkswagen offers five models in diesel and three in petrol.

IN A MARKET THAT’S showing a decided bias towards diesel cars, will Honda’s one-car offering work? Abdul Majeed, auto practice leader with PricewaterhouseCoopers, says: “With the amount of competition out there, you can’t have a one-product strategy today. You need two, maybe three, successful car models with strong local engines and transmissions.” Today, Honda’s sales reps are stretched when it comes to pushing volumes. The Honda Civic, a sedan that drove well but had some ground clearance issues, has been discontinued. The Accord at Rs 20 lakh and the CR-V at Rs 22 lakh are both priced well above the
Rs 5.5 lakh to Rs 10 lakh band that most Indian cars sell in. The City, Honda’s volume generator, may be successful in its fourth version—accounting for 66% of Honda’s India sales in FY11—but it is getting long in the tooth.

The other big problem for Honda is its pricing strategy. Many of Honda’s cars have been considered to be over-priced and buyers have opted for cheaper cars offered by other companies in the same segment. The Jazz, launched in 2009, was priced between Rs 7.10 lakh and Rs 7.60 lakh—too expensive for a hatchback, even if it was built on the City platform. (Most hatchbacks in India are in the Rs 5 lakh to Rs 6 lakh band.)

Jnaneswar Sen, senior vice president, sales and marketing, Honda Cars India, admits that the Jazz “became out of reach”; in 2011, prices were slashed by Rs 1.5 lakh. This was the second time Honda had to cut prices. After launching the Civic Hybrid for Rs 21.5 lakh in 2008, it was forced to cut prices by almost 40% within a year.

It’s evident that if Honda wants the Amaze to take on the competition (the Toyota Etios and Maruti Suzuki DZire are in the same category), it will have to get the pricing right. Indications are that the Amaze will cost between Rs 6.50 lakh and Rs 8 lakh. Advance reviews say the Amaze’s interiors are relatively spartan, which suggests that costs have been cut in manufacturing.

Manufacturing Amaze’s engine in Tapukara instead of importing them from Thailand will further reduce costs, says Sharma. (In the past, Honda has imported engines manufactured at its factory in Thailand.) Of the 611 acres that the Rajasthan government helped Honda acquire, 455 acres are for Honda’s plant and the rest for suppliers’ factories. “We have five suppliers currently in the suppliers’ park (Yutaka, G-Tekt, Bestex, FCC Rico, Yachiyo) and some five others (including Motherson Sumi, Sunbeam, and Shriram Pistons) close by,” says Sharma. There’s also a Japanese component park close by in Neemrana, Rajasthan, that will supply parts.

Honda is hoping that its reputation for making great petrol engines will carry over to diesel engines. So far, reviews of the Amaze have been positive. Autocar India, a leading automotive magazine which test drove the scaled-down version of the 1.6 litre European diesel Amaze, says: “The motor impresses with its refinement. Even better is its responsiveness. Also cementing its city-friendliness are gear-shift and clutch actions, both of which are smooth and light.” The downside: “the upper reaches of the rev band [the highest speed at a given gear] where the sound becomes increasingly thrashy though refinement at lower engine speeds is impressive”. In comparison, its report on the diesel Toyota Etios is less complimentary. “The engine, though adequately powerful in the city, feels a bit breathless on the highway and is pretty noisy too. It’s only when you are cruising that the drone subsides ...”
Sen says Honda does have experience in making diesel engines; a decade ago, diesel versions of the Accord and CR-V were introduced in West Europe. At that time, the price difference between petrol and diesel in India was just Rs 10. The gap increased rapidly to Rs 27 in 2012 and Honda couldn’t ignore it any longer.

Once it decided in favour of a diesel engine for India, Honda moved swiftly. The Tapukara factory will soon have cars ready to roll out. A board member from Japan visits the factory every month to keep tabs on the progress. Sharma says: “The system is in the final stages of fine tuning but it’s more or less ready to be rolled out.” Thailand has already launched the Amaze and components for it will also be sent from Tapukara.

While Tapukara will help meet the growing demand for diesel cars here, Sharma says the challenge will be in balancing quality with volume. “Quality doesn’t come cheap,” he says. Honda has corrected its pricing “mistake” where possible because “we see ourselves as a logic-based company—the boss doesn’t decide; logic and reason decide”. And realising the huge market for diesel vehicles, Honda, logically, plans to introduce more diesel variants. Its diesel line-up, says Sen, includes a diesel Jazz and a seven-seater people mover.

“With the disparity between diesel and petrol becoming obvious, customers are willing to wait for three months, even more, to get their diesel car,” says Majeed, so Honda is unlikely to have a problem finding buyers (unless it gets its pricing horribly wrong again). But here’s the thing. There are indications that the government will soon deregulate diesel prices. Vikas Sehgal, managing director and global head of automotive at London-based Rothschild Group, says that given the fiscal pressure India is facing, “it’s quite possible that India may switch its subsidy policy on diesel in the near future”. The Oil Ministry recently proposed an increase in diesel prices sometime this year. In that case, there's the old faithful petrol engines which will once again take the centre stage.

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