High interest rates are the major cause of the recent de-growth in the car market
President and CEO of Honda Cars India Ltd. Hironori Kanayama has had a difficult year ever since he took up his post. The car-maker has seen its market share nearly halve over the last five years after a series of mis-steps, the most prominent being not having a diesel model. A year later, however, Mr. Kanayama believes he is “reaping the benefits that were sowed by his turnaround strategy.” With the newly-launched Amaze sedan now counting for nearly 50 per cent of the company’s sales in India, the car-maker’s counter-attack has just begun. In an interview with The Hindu, Kanayama talks on Honda’s gameplan, its industrial relations strategy, and more. Excerpts:
How have the last 12 months been for both you and Honda Cars India?
It has been amazing for me. Since I reached India last April, difficulty has surrounded us — difficulty like the depreciation of the rupee. As you can imagine, this has increased our import costs. Besides this, we only had petrol models in the market. So, when petrol prices increased, it affected our operations tremendously. Therefore, in the last few years, we have been focusing on the development of diesel models, starting with the Amaze.
To reduce the influence of the exchange rate fluctuation, we had to accelerate localisation. In fact, in some models we have achieved around 90 per cent localisation. Basically, in the last few years, we started sowing the seeds of development. What you see now is us starting to reap some of those benefits.
Is it Honda’s India strategy to lag slightly behind the curve, in terms of coming out with new products such as a diesel model or a compact SUV, and watch how your competitors do first?
Our strategy, globally, is to bring out whatever model the customer would like to have. We don’t really adopt the ‘wait and watch’ model that you are referring to. From an India stand point, it seems like that we have taken such an action. This is more because of how different our company’s history is when compared with others.
Most of you compare Japanese manufacturers, mainly Suzuki and us. Honda mainly went into advanced markets such as the U.S. and Europe, and in some of these markets, the ratio of diesel to petrol cars is almost negligible. Therefore, we focussed only on petrol engine models, especially in the last ten years. The global trend has also curved towards more eco-friendly technology. In fact, this is where we are the best.
On the other hand, you take Suzuki. They focussed on the Indian customer market… they decided not to compete with other Japanese manufacturers like us. They started operations 30 years ago, and pulled off a great success. Therefore, it isn’t surprising that Suzuki makes diesel models which are a great hit here.
The characteristics of the Indian market are unique. Nearly 50 per cent of cars sold are diesel. Nearly 50 per cent is in the hatchback range, and so on. We are used to bigger engines and petrol models. Now that we have started focusing on the Indian market, we will study all segments that will be accepted by our customers. Our counter-attack has just started!
How important is India for you in your global strategy?
Well, look at this way. Honda has sold about 4 million cars globally in the last fiscal, which ended this March. Our President has announced that this will be increased up to 6 million in the fiscal year ending March 2017. And, the increase comes from emerging markets, which include India. Therefore, in that sense, the contribution of the Indian market to Honda’s global strategy will be increased tremendously.
India is a growing country for now, but there is fast deceleration. Does this worry you?
History has proven that there is no market that grows permanently. Japan and China are classic examples of this. The speed of growth has come down. But this does not mean the Chinese or Japanese market has disappeared!
While there may be some fine-tuning going on in India, I’m sure it will pick up.
But yes, in the short-term, this is a slight concern. However, our management strategy cannot be formulated based on a short-term view of the economy. We need huge investment to succeed here. If we worry about the short-term view, we will never be able to invest here.
Do you think the Indian market has attained a certain level of maturity?
I don’t think you should say maturity. You should say progress. See, the number of cars on the road is around 25 million or 26 million, including commercial vehicles. This is just 2 per cent against the population. In Japan, it is around 75 million, and that too Japan has one-tenth of the population of India.
Therefore, it is not about right or wrong, but more about the development stage. As the economy grows here, the ratio will increase. More customers will be exposed to the ‘car experience’. In due course, the same will happen in China.
In Japan, in the 1960s, people longed for owning a car. It is no longer like that now! Buying a car has become like buying a bicycle in Japan! But here in Chennai, here in India, this is different. Owning a car here is proof of social status. Therefore, we have to respect such sensibilities. We want to inculcate the pride of owning a ‘Honda’ car here…we don’t want to just provide customers with the convenience of mobility.
But why can’t countries like India leapfrog to electric? You can’t have ten out of every hundred people driving a car here. It would cause an environmental disaster.
The electric car, or EV, has many disadvantages and advantages. The first big thing is that it costs, it costs big time. Second, you need charging stations. You get less mileage.
It is said that those cars need to replace their batteries every few years as well. These are simple facts. Yes, it is true that people in Beijing are suffering from air pollution. They definitely want electric cars — but they don’t want to have to ‘pay’ for it with all these disadvantages.
Similarly, Indian people are very fuel-efficiency conscious. The bottom line is whether it pays for them to drive an electric car.
Most importantly though, we should not mix the fact there are environmental problems and that simultaneously there is potential for greater penetration of cars. We manufacturers cannot solve environmental problems on our own. The government must do something as well.
In Japan, for instance, hybrid car sales are around 10-20 per cent. This is because the Japanese Government has subsidised such eco-friendly cars!
We do need to reduce exhaust from the cars. At Honda, we are developing such technologies — the fuel cell car, for instance. This type of car exhausts only water. But, of course, it costs a lot, and we are struggling to reduce the cost. It is quite eco-friendly, it has no CO2 and no NOX at all.
The final problem is that in India, for EVs, how do you produce electricity? At the generation stage, you produce a lot of CO2. All you are doing is shifting the place of pollution!
In the industrial belts of Delhi and NCR, industrial relations are getting worse. Does this worry you? What kind of strategies does Honda have in place?
Well… do you know that I once served in the Honda union? I was a full-time union officer for six years. I think that the mental gap or the mental barrier between the management and the associates/employees are the major cause of all labour disputes.
We, at Honda, have a philosophy that is called ‘respect for the individual’. One of its meanings is respecting the gender, educational background, and nationalities of all employees. Honda will give equal opportunity to all people, regardless of any of those characteristics.
I am trying to materialise such a way of thinking here in India. For the last one year, I have direct communication with my associates/employees. It is the little things that matter. For instance, in office, we all wear the same white union uniform.
We all use the same canteen…half of the week. I even eat Indian food! During Diwali time, we all celebrate together. I even once played guitar in the presence of all the employees and their families!
There is no reason that management and associates/employees should be enemies. It doesn’t help us. The common objective is the development of the company. At the end of the day, everybody wants higher wages, job security, and the pride of working in a specific company.
However, without company development, none of this can be realised. Therefore, all of us are working towards the same target.
Another major concern in the Indian market is the interest rates. How does this alter your strategy, as most Indian car buyers are EMI-financed buyers…
Well, of course, high interest rates are the major cause of the recent de-growth in the car market. Therefore, we really hope that the economy will pick up soon. But, as you may know, the market has de-grown by around 10 per cent. And, it has lost growth for the last seven months. But for the last fiscal year, we grew nearly 35 per cent. This is at a time when the market is de-growing. Therefore, even if the economy is sluggish, it does not mean that the market has disappeared. It is just a matter of the speed of the growth.
Therefore, whatever the market is, what we have to do is provide the customers with the most attractive models with best-in-class service.
Why is Honda not actively looking at India as an export hub?
If India has more FTAs [with ASEAN countries], there is a possibility that we will export more cars. However, that said, our forecast for the domestic market is not export. We believe in the potential of the Indian market, and we want to commit to it.
Furthermore, Honda has many factories all over the world. It is only in Africa and the Middle-East that we don’t have. India is our closest factory to this. On the other hand, we have even exported cars from Thailand. So, whenever there is room to export, we will. Our basic strategy, however, is focusing on the domestic market. It is our philosophy that we want to prove ourselves in this market. I don’t want to say that India does not have export potential. It does have. But we first want to have a stronger presence here… that will be our first mission.