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Despite falling sales, Honda buys 380 acres land in Gujarat for third plant

Honda has acquired 380 acres in Gujarat to set up a new assembly line, though its two existing plants -- one at Greater Noida and the other at Tapukara in Rajasthan -- are running at half the installed capacity of 2.40 lakh units.

autos Updated: Feb 25, 2017 13:45 IST
Honda Cars,Honda Cars India,Honda
Chief executive and president of Honda Cars India Ltd, Yoichiro Ueno with SVP and director Raman Kumar Sharma (R) pose for a photograph during the launch of Honda City 2017 car in New Delhi on February 14, 2017. (Anmol Wahi/ HT Photo )

The sales of Honda Cars India have fallen by 25% over the past year, but that hasn’t deterred the Japanese carmaker’s expansion plans in the country.

Honda has acquired 380 acres in Gujarat to set up a new assembly line, though its two existing plants -- one at Greater Noida and the other at Tapukara in Rajasthan -- are running at half the installed capacity of 2.40 lakh units.

In 2016, Honda sold 1,58,658 cars, a steep 25.3% decline from 2,12,372 units in 2015. Its market share has also fallen to seventh from fourth. This has also slowed its pace to chase an earlier target of selling 3,00,000 lakh cars in the country in 2017.

“We have just completed acquisition of around 400 acres, to be precise 380 acres, at Vithalapur in Gujarat, though we have no immediate plans to set up a plant there. We have bought the land so that as and when we finalise the third plant, we have the land ready,” Honda Cars India chief executive Yoichiro Ueno said.

He said this is done as they are confident of the long-term potential of India and are committed to this market. With GDP clipping at 7%, there isn’t any reason to be otherwise, and Honda wants to be part of this growth story.

Ueno, however, refused to offer the price they have paid for the land parcel. But the company sources said they have paid around Rs 1,000 crore for the land parcel.

Raman Kumar Sharma, Honda Cars India director and senior vice-president, told PTI that excluding this latest investment, the company has pumped Rs 8,000 crore into the country since its entry in the 1990s.

Sharma said they bought the land from individuals and completed transactions earlier this month only and bought the land considering the challenges of land acquisition in the country coupled with rising realty prices, it is way of derisking future volatilities.

Vithalapur is about 80km northwest of Ahmedabad, where Honda’s two-wheeler subsidiary Honda Motorcycle and Scooter India runs the world’s largest scooters only plant with a 1.2 million annual capacity, opened last February.

Honda expanded capacity to more than 2,40,000 units from 60,000 in a short span. A large part of the additional capacity was in diesel during the peak of diesel demand a couple of years ago. But Ueno said they will go slow on diesel now as customer preference have already shifted back to petrol since the fuel price difference is narrowing.

Ueno attributed falling sales to the overstocking of around 24,000 units at showrooms on average as the company was planning to discontinue the existing model of its warhorse City in the run-up to the new launch earlier this month.

Over the last weekend, the company said it had received as much as 5,500 bookings for its new City within 15 days of launch and is bullish on the prospects as it attempts to be a premium player in India again. This will also see the company relaunching the Accord and the Civic sedans shortly.

With the Maruti Ciaz picking up steam, the City was relegated to No 2 slot over the past few months. But Honda said this was primarily due to destocking it had been doing to prepare for the new version. While the City was averaging around 6,000 units until recently, the Ciaz for the first time overtook it by selling 5,360 units.

“We don’t want to be known as a cheap or mass brand. We want our brand to be known as a premium car brand. Our focus will be the upper segment going forward. We’ve decided to maintain our traditional positioning, which is a bit more premium though not luxury. So, we’d like to target customers a bit different from others in terms of products, service, and customer experience,” Ueno said.

Ueno said the City sales declined in the past few months, because the company was in a phase out stage as it was preparing the new fourth general version of the City.

First Published: Feb 25, 2017 13:43 IST