Honda’s strategy to achieve economies of scale


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More and more people from the automobile fraternity increasingly have realized that if at all they are to benefit from the economies of scale, they need to have a winning proposition in the form of a small car. Even the global giant called Toyota which is still hesitant with its strategy to include a small car in its portfolio is now bringing in a hatch back in April. In the wake of this development, Honda Siel cars, the Indian subsidiary of the Japanese giant Honda Motors is now looking to mop-up significant numbers from the ever expanding Indian markets with its next big launch, the small car Brio.

According to a recent report in the business daily Business Standard, Honda is planning to expand its network to small cities and towns and will have strategic tie-ups with state –run and regional banks to make sure that its upcoming model Honda Brio does not go down the same fatal path as Honda Jazz hatchback. According to various reports and opinions from pundits across the spectrum, Jazz which was positioned as a premium segment car has not been up to the mark. It was also reported that the sales of Honda Jazz has slumped 40% to a not so decent mark of 3,731 units in the April-December period down from 6,247 cars which were sold in the year earlier. With all said and done, Honda Motors wants to bring in the small car Brio to the Indian market reasonably priced to gain the elusive numbers.

Honda Siel Car’s vice president is on record saying “We are not exactly focusing on the major metros with Brio. It will cater to urban nucleus families, but will meet specific needs of larger family units in small towns.”

Honda Brio is part of a clear strategy from Honda. The report further states that Honda took extensive research of the Indian markets before coming up with Brio. The reported length of the research was revealed to be of 5-years. Thus, keeping in view the local conditions and specifically catering the car to typical Indian families. The car has the potential to accommodate five adults and also meets the entire statutory requirement laid down by the government of India, to qualify as a small car. Noteworthy is the fact that small cars are taxed 10% compared to 22 percent for bigger vehicles.

It was also mentioned that Honda Motors intended to tap the massive potential in tier-1 and tier-2 cities to make sure that Honda Brio takes on competitors like the Ford Figo, Hyundai i20 and Maruti Swift and revive its flattening sales. The various models of Honda namely City, Accord, Jazz , Civic and CR-V are been seen to be ghettoized in the confinements of the cities even as other auto manufacturers have hit the country-side to gain incremental numbers that has been a driver of the auto industry and propelled it to a growth of more than 30% in the year 2010. In recent news it has been reported that the Honda Brio is expected to be formally launched in the month of September with a monetary value of less than Rs 5 lakhs attached to it and it will be focused even at the customer from small town. It was further mentioned in the report that Honda Motors has also begun talks with regional as well as government owned banks to offer structured finance for its cars. “As we moved to small cities and settlements, we have enrolled these financial institutions including cooperative banks, which have the ability to cater to profiles of potential customers for Brio,” said the vice president of Honda Siel cars, according to the report.

Honda is also looking to expand its pie in the Indian market by expanding its presence in the country. It was reported that Honda Motors will fast track its expansion to emerging centers ahead of Brio’s launch. The report further mentioned that Honda has already grown its network base to 150 outlets in 72 cities now from 120 outlets in the previous year. This was due to the fact that Honda brand has penetrated to towns such as Asansol, Nellore , Mandi, Alwar, Dibrugarh, Coonoor, Hubli and Gorakpur in recent months.

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