The Hindu Business Line : Hero Honda riding strong on difficult economic terrain

Mumbai, Dec. 26 This has been a trying year for the two-wheeler industry and, as in the case of cars, the biggest bottleneck has been limited access to financing.

Industry sources say that 2009-10 is going to be as difficult though the optimists insist that customers will bite the bait so long as there is enough going for the product concerned. This possibly explains the sustained success of models like the Activa, Scooty, Splendor, Passion, and Pulsar among others as well as new ones like the Stunner and YZ16.

By the end of the day, a bike is far more affordable than a car, which means it is reasonable to expect buyers to put cash down on the table at one go. However, they would need a good reason to do so, which means that manufacturers have to work overtime on providing enough excitement in their products.

Till a year ago, the general view was that the Indian two-wheeler market would touch annual production of 10 million units in 2010 but that was before the slowdown happened. It is barely six million going by the present sales trend, which means this target could spill over into 2011-12.

As calendar 2008 draws to a close, Hero Honda has clearly emerged the monarch of the two-wheeler arena. This has happened at a time when sales have nosedived and other manufacturers are giving top priority to clearing up stocks.

In November, Hero Honda reported sales of nearly 2.9 lakh units, which was more than the combined sales of Bajaj Auto and TVS Motor at 2.3 lakh two-wheelers. This was the same pattern in October too and there is no reason to believe why it will not continue through the whole of 2009-10 too.

What makes it ride?

What is it that makes Hero Honda connect so well with the market? It continues to rule the executive segment with its trusted Splendor and Passion 100cc bikes which make up two-thirds of its sales. These brands have been around for many years now and the fact that they continue to draw buyers only means that they have something going in terms of loyalty.

Dealers believe that Hero Honda’s bikes still score in the resale value quotient though this premise has often been challenged by its closest competitors. There are no two ways about the fact, though, that the company has struck a chord with the common man across India’s cities and towns which is a tribute to its aggressive retailing. Banks also feel comfortable with Hero Honda and are more lenient when it comes to financing its bikes because money is assured on resale.

Reports have also been constantly doing the rounds of a possible split between the promoters, Honda of Japan and the Munjal group. “The sustained success of Hero Honda has clearly shown that the Indian partner’s role in the joint venture is critical especially when it comes to evolving marketing strategies,” sources say.

Honda’s other two-wheeler arm, HMSI (Honda Motorcycle & Scooter India), is barely a decade old in contrast to its successful sibling but has quietly revved up monthly sales to one lakh units. In the process, Hero Honda and HMSI have a combined market share of nearly 63 per cent which must be music to the ears of Honda.

The Japanese automaker is more than familiar with India. Its joint venture with the Munjals is over two decades old. In the 1980s, it had an alliance with the Pune-based Kinetic group which ushered in the gearless scooter revolution in the country. After parting ways with Kinetic, which led to the creation of HMSI, Honda has in no time reclaimed the throne for gearless scooters and today, the Activa is the clear leader in the gearless scooter space.

Challenging might

So, what does the might of Honda imply for Bajaj Auto and TVS Motor? Both companies have challenged Hero Honda’s supremacy in the past but could not quite sustain the battle. When TVS launched the Victor way back in 2001-02, the bike quickly climbed the sales charts and had Hero Honda on the backfoot. It was a short-lived threat because the Victor gradually lost steam and Hero Honda came charging back with a vengeance.

In a scenario of overall bleak sales, TVS is obviously keen to keep its balance sheet healthy. It is too early to say if the recently launched Flame will create the magic of the Victor. Sales have been modest thus far and the company could introduce another bike in the executive category next fiscal and possibly a more powerful gearless scooter.

Bajaj positions

Bajaj Auto carved a leadership position for itself in the premium segment with the 150cc Pulsar that caught the fancy of the market in a big way. Its success prompted the company to draft its own script which was intended at weaning buyers away from 100cc bikes and move upwards to more powerful options while paying a little more.

The 125cc Discover that followed promised plenty and, with the Pulsar, is Bajaj Auto’s most enduring brand. It was the XCD 125, though, that the company was banking on to create a churn in the executive segment but things did not quite go according to plan.

Bajaj has reiterated though that it will stick on to its agenda of focusing on 125cc plus bikes through 2009-10 and has indicated that there will be six new launches to begin with. These could include at least two new products from the XCD platform like the Sprint (the sporty version), Discover 150 and possibly a more powerful Pulsar. The year will also show the strength of the XCD brand and if it has the potential to reach the levels of the Pulsar and Discover.

The dark horse in the premium bike segment could be Yamaha whose 150cc FZ16 has already won rave reviews. The company’s biggest task on hand is to rebuild its retail infrastructure (in terms of sales and service) which has been a chink in its armour for years now.

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