Honda effectively makes its way through profits

The troubled auto Indian market has made life difficult for auto manufacturers; the two year long slump is the worst in ten years. It was only in period of 2014 May that signs of revival was noted for the first time after depression and waves of profits was recorded in 2014 June. Honda was not all affected by weak economy, the firm is now geared to capture the bubbling spirit of the young spritely demographic.

To cater to the needs of Indian population, Honda is targeting various economic sects from different revenue backgrounds. Brio will fall into the SEC-A category where the earning capacity is between Rs 50,000 and Rs 75,000. The recently launched Mobilio MPV along with Honda City and Amaze will capture the upper level SEC-A market. The earning power in this category is Rs 75,000 to 1, 50,000 per year.

The car diversity level in India is huge because of the variation in income groups. Car makers are not overly confident on immediate sales, mainly because of the extent of loan payment. Just like auto market, the price distribution of house schemes is vast. If consumers invest huge amounts on a house or apartment then the loan payoff amount is significant and there is little scope to buy cars. The buying trend will become more flexible when the current working population and future generation spend on vehicles ahead of homes.

The major car purchasing hindrance trigger is hectic work load caused by industrial expansion. People in today’s world are not ready to settle before 35 and the younger lot is mobile to the core, they travel in between cities to complete assignments or discuss new business plans. Most work places don’t have proper infrastructure, if then becomes a burden to drive around with little or no room for parking.

The increase in rural population over the cities in the past few years has hurt car sales. The urban section is now a minority; the overpowering is so robust that by 2030 about 60% of 300 million working professionals will be rural migrants. Their average salaries are not feasible enough for car buying, they will hence opt for bikes. With all the challenges the Indian auto market is facing, Honda has managed to capture 5% market share from the movement of 2.5 million passenger vehicles. The segment has gone through a rough phase with 6% dip in market share in last financial year.

Honda has made spectacular 75% gains in 2014 June, on the back of two stellar launches Amaze and new Honda City. Both cars offer the required comfort, safety, mileage and engine power required in todays hectic and relatively unsafe world. Honda’s engineering power is world class, the company has emerged with novel engineering technique called ‘Man Maximum Machine Minimum, it will be used in new Jazz and Vezel. The company has emphasized a lot on localisation to cut costs, about 90% of its vehicles are localised.

Honda had faced its share of problems earlier, in 2005 a massive labour unrest broke in and it took four years to attain normalcy. In 2010 Honda shifted base to diesel and small vehicles, the strategy did not work too well in FY 2010 to 11 and in FY 2011-12 the firm sold 54,427 pieces. Analysts were concerned on Honda’s profit revival, the company then invested rapidly on B segment vehicles, and launched Brio hatch in 2012. From then on Honda was on a profit roll seen in whole of 2013 till now with launch of Amaze and new City.

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