Hero without Honda - what the future holds


Hero Honda shareholders have been a worried lot ever since it became clear that the two equal partners in the company, Honda of Japan and the Munjal family, had decided to part ways. Will the company have a future without Honda? It is the largest player in the market; will Honda’s exit dent its market share?

Technology is the heart and soul of any automobile. Honda, which provided the technology to the company, was never too happy with its 26 per cent share of the dividends and royalty; it felt its contribution was way bigger. The technology tap will not be turned off immediately: Honda will continue to provide knowhow for a few more years.

The motorcycle market in India is extremely competitive, with half a dozen serious players. Hero Honda, in its new avatar, has to find its space here. Exports were never a significant option, as it could sell only in those markets where Honda wasn’t present. Hero Honda’s stated plan is to launch eight to 10 new models or updates every year to stay ahead of rivals. For this, it needs technology.

Automotive analysts feel the Munjals must have invested in research because the tension with Honda had been simmering for a while. The first indication came almost 10 years ago, when the agreement was rewritten and Honda allowed to sell scooters to begin with and then motorcycles, on its own.

“Unlike cars, two-wheeler technology is simpler,” says PricewaterhouseCoopers’ leader (automotive practice), Abdul Majeed. The money saved on royalty, he thinks, can be ploughed back into research. There are indications that the company may have made some progress in this direction: It has been working on a low-cost motorcycle that comes at the price of a moped but is loaded with all the features of a motorcycle. Others feel it can buy technology off the shelf from independent providers abroad.

Home strengths
Some feel consumers buy motorcycles by the brand – Splendor, CBZ, etc – and do not go by the technology provider’s name. In fact, Hero Honda has worked in the last three to four years to create enough differentiation between all its brands. It has also sharpened marketing skills. It studies consumer behaviour as minutely as perhaps a fast-moving consumer goods company. All advertisements are first run past a sample of consumers for feedback. It has a bevy of celebrities to endorse its products and had built strong emotional connections with consumers in the fields of cricket, music, movies and adventure – the zeitgeist of the youth.

Hero Honda also has formidable strengths in the rural market. This came to light in 2007 and 2008, when there was a credit squeeze. The market went into a tailspin but Hero Honda sales didn’t dip. This was because rural purchase remained buoyant – these buyers pay upfront and do not purchase on instalments. The company reckons that 40 per cent of its motorcycles are bought by rural folks. (This is just an estimate, because all its dealerships are in towns and cities.) It then set up a rural division, with a team of 500 salesmen to contact buyers in these markets. Farmers, the company knows, have money in their pockets twice every year after they have harvested their crops. That is when it launches special waves to sell to them.

This could be a clever strategy to take on rivals in the days ahead, Honda included. The dealer and service infrastructure that Hero Honda has set up – almost 4,000 touch points – will not be easy for Honda to replicate. Hero Honda claims that its network of repair and service centres, coupled with the easy availability of its spare parts, fetches its motorcycles a higher resale value than others.

Some time last year, Business Standard had asked Hero Honda Managing Director & CEO, Pawan Kant Munjal, if the launch of Honda’s 100cc motorcycle bothered him. “It doesn’t come as a surprise to us, just like the Honda scooter didn’t come as a surprise. There will be one more motorcycle in the market,” he had replied, in a somewhat cocky way.

Will the attitude change when Honda revs up in India?