Battered by low demand for its cars in the pandemic, Japanese carmaker Honda Cars India is shutting down its 23-year-old car factory in Greater Noida on the outskirts of the national capital in its bid to contain costs as it looks to increase utilisation at its bigger and more modern facility at Tapukara in Rajasthan.
This is the second car factory to be shut in India, after US carmaker General Motors (GM)decided to discontinue production at its Talegaon facility this week. Unlike GM, which exited the Indian market a few years back and sold its other factory to China's MG Motor, Honda remains an active player in the market.
Spread over 150 acres, the company had set up the factory in Greater Noida in 1997 with an installed capacity of 100,000 units per annum. Most of its best selling cars, including the City sedan were launched from this factory. The decision comes after it offered a golden handshake to all its employees through a VRS scheme earlier this year. Around 900 employees opted for the scheme. The premises would still continue to have head office functions, R&D Centre and spare parts operations (including warehouse) for automobile, two-wheeler and power product business.
"Despite an uptick in sales in the last three months, the current market conditions remain unpredictable for the industry at large. The impact of COVID-19 has pressed us to strengthen our constitution, and to achieve the same, HCIL has decided to consolidate its manufacturing operations by making the Tapukara plant a unified manufacturing base," said Gaku Nakanishi, President & CEO, Honda Cars India. "HCIL continues to believe in the resilience of the Indian economy and hope for a quicker recovery of the market. India is extremely important market in Honda's global strategy and HCIL is committed to bring its latest and advanced technology models including electrified vehicles in future."
Shuttering the Greater Noida factory also means the company is also discontinuing its two premium models - Civic sedan and CR-V crossover. The company had launched the latest version of the CR-V only two years back in October 2018 while the Civic was relaunched in March 2019.
While the going has generally been tough in India's domestic passenger vehicle industry, even before the pandemic hit the economy - in 2019-20, domestic sales crashed by 16 per cent, worst ever in two decades - Honda's struggle for growth has predated that. At its peak in 2015-16, it sold 192,059 cars in the domestic market. In 2019-20, it has comes down to just 102,016 units. This year so far, it has sold 45,690 units, a decline of 40.88 per cent over last year and is slated to finish the year with sales of less than 100,000 units. The overall industry during the period has declined by 21.67 per cent.
"Last year was bad but things are looking up now. The decline you will see this year is mostly due to the first quarter when no sales was possible due to the lockdown. Since then and especially during the festive season, the revival has been robust which gives us confidence," says Rajesh Goel, senior Vice-President and Director - marketing and sales, Honda Cars India.
This year, Honda launched the fifth generation version of the City sedan, which has quickly reclaimed its leadership position in the mid-size sedan segment. It is however a category that has stagnated as more buyers have flocked to SUVs, an area that has perennially been Honda's weakness.
For a company that is led by engineers and not marketeers or salesmen, Honda has found itself woefully behind the curve in India. It was late to come up with a mini car - the Brio hatchback was launched in 2011 and discontinued in 2019, as also in developing diesel engines (2013). Its half-hearted attempts at cracking the MPV/SUV segment with the Mobilio, BR-V and WR-V have not yielded the desired results either. This has seen newer more fleet-footed companies like Kia Motors march ahead of the Japanese firm. Once knocking on the doors of the top three, Honda is no longer even among the top five carmakers in India.
"Shutting down the Greater Noida factory is a tough call that we needed to take but we are not cutting down on any of our investments in new product development. This is a strategic call we have taken and it does in no way mean that we have lost confidence in the market," Goel adds. "Right now, it may look bleak but in five years time, maybe people will say we did the right thing in 2020."
The company would not give out details on its future product line up or a timeline for its SUVs. Neither does it say how much it is investing in new product development. Yet, with a terminal capacity of 180,000 units at Tapukara, it does betray its lack of confidence in matching the peak of 2015-16 or even 2018-19 (183,787 units) any time soon.
If it did, shuttering the Greater Noida factory would not be necessary.
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