Honda Losing in India Without Diesel as Gas Prices Rise: Cars
January 11, 2012, 4:13 PM ESTBy Siddharth Philip
Jan. 5 (Bloomberg) -- Honda Motor Co. is the only automaker in India that doesn’t offer diesel-engine cars. That’s proving a costly mistake as the end of government controls has sent gasoline to a record high.
The Tokyo-based automaker sold 1,072 cars in India last month, fewer than a quarter of the number in June 2010, when price caps on gasoline were scrapped. In response to the demand for diesel models, Honda said in November it will develop a compact diesel engine as part of a drive to lead in fuel- efficiency rankings within three years.
The gap in Honda’s lineup is hampering it in the world’s second-most populous country as the market shifts to the cheaper fuel. That contrasts with General Motors Co., which reported a 7 percent gain in sales last month on demand for its diesel Chevrolet Beat hatchback. Consumers in India are expected to buy 2.72 million passenger vehicles in 2012, according to IHS Automotive.
“By the time Honda comes to the market with its diesel engine, it might be too late,” said Sanjeev Varma, a senior adviser at investment bank Duff & Phelps LLC, based in Novi, Michigan. “Honda has made some bad moves globally.”
Honda’s slumping sales in India add to a year in which Japan’s third-largest carmaker withdrew its full-year profit forecast after Thailand’s floods and the earthquake in Japan disrupted production. In the U.S., its 2012 Civic failed to receive the sought-after “recommended’ status from Consumer Reports magazine.
‘Shifting Toward Diesel’
Sales of diesel cars in India grew as much as 22 percent during April to October from the same period a year earlier, while sales of gasoline vehicles declined 15 percent, said Sorabh Talwar, an analyst with HDFC Securities Ltd., in a Dec. 9 report.
“Demand is shifting toward diesel,” Jnaneshwar Sen, New Delhi-based vice president of marketing at Honda, said in a phone interview on Dec. 16, declining to comment on when the new diesel models will be introduced. “If we want a presence in a larger part of the market, we need to add diesel engines.”
For Kalpesh Joshi, a 34-year-old dental surgeon in the central Indian city of Indore, choosing a diesel-run Chevrolet Cruze over the Honda Civic was simple.
“I would save much more with the Cruze diesel in the five years that I plan to keep the car,” said Joshi, 34, a dental surgeon in the central Indian city of Indore. “Petrol will get even more expensive.”
Fuel Prices
India’s fuel pricing policy has pushed the difference between diesel and gasoline to 60 percent, compared with the 28 percent gap in June 2010. The government continues to subsidize diesel, which is used by freight companies and accounts for a higher weight in India’s inflation index.
Gasoline prices are 28 percent higher at 65.64 rupees a liter in New Delhi compared with June 2010, while diesel has risen 2 percent in the same period to 40.91 rupees, according to Indian Oil Corp.’s website.
The higher fuel prices, coupled with the fastest round of interest rate increases since the founding of the Indian central bank, is lowering demand for vehicles. The Society of Indian Automobile Manufacturers this month may cut its annual sales forecast of between 2 percent and 4 percent for the year ending March 2012.
Losing Share
Honda has slipped to eighth place last year by sales in India with a 2 percent market share from fifth in 2007, according to the Society of Indian Automobile Manufacturers. Back then, the automaker accounted for 3.8 percent of total car sales, with Maruti Suzuki India Ltd. the leader, selling about half of the cars in the country, according to data from the industry group.
Honda’s rivals are boosting supplies of diesel models to satisfy the increasing demand.
Fiat SpA’s Indian unit may supply as many as 100,000 diesel engines to Maruti Suzuki India Ltd., the country’s biggest carmaker. About 88 percent of orders for Maruti’s new Swift hatchback are for the diesel variant, according to Maruti Chairman R.C. Bhargava said on Oct. 29.
At GM, 80 percent of sales are for diesel models, said P. Balendran, vice-president at General Motors in India, in a phone interview on Dec. 15.
The Detroit-based automaker reported a 7 percent increase in December sales from a year earlier to 9,039 vehicles, with the Chevrolet Beat accounting for more than half of those deliveries, according to a Jan. 2 statement from the company.
“We’ll have to wait until the latter half of 2012 to see what Honda comes up with,” said Yuuki Sakurai, chief executive officer at Fukoku Capital Management Inc. in Tokyo, which manages the equivalent of $7.4 billion. “If the present condition at Honda continues for one to two years or even longer, they may be in a very difficult position.”
--With assistance from Anna Mukai in Tokyo. Editors: Abhay Singh, Chua Kong Ho, John Brecher
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
