Honda Becoming Its Own Hero in India

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We know it’s a cryptic headline, but there’s a big HUGE move happening today in India as far as motorcycles are concerned, and we couldn’t help being overly dramatic. Holding a 26% stake in Hero Honda, Honda announced that it will be selling its position in Indian joint-venture, the world’s largest two-wheel manufacturer, to the Hero Group’s founders, the Munjal family, and various investment funds.

Honda in turn will be pumping its resources into its own fully-owned subsidiary in India called Honda Motorcycles and Scooters India (HMSI). Buying its stock back at a discounted rate, the Honda will be selling the stock to Hero Honda for $1.2 billion, presumably in exchange for a larger percentage of the company’s early revenue (Honda currently takes home 2.5% of Hero Honda’s yearly revenue).

Hero Honda was first established in 1984 as a joint-venture between the then bicycle-only Indian manufacturer Hero and Japanese-based Honda Motor Corp. Making motorcycles and scooters in the Indian market, Hero Honda sold 3.2 million bikes in the last fiscal year (you know when the entire motorcycle industry was collapsing in on itself like a dying star). Currently Hero Honda holds a 59% market share in India (up from 41% last year), selling 1.29 million units in the last quarter alone, making it a juggernaut in the developing country (Hero Honda sells predominantly small displacement machines).

While Hero Honda is crushing it, HMSI has faired quite well on its own as well. With a 17% market share in India, HMSI has carved out a nice niche for itself making larger displacement machines, and has recently been importing the VFR1200F, CBR1000RR, and CB1000R motorcycles. Now setting Hero Honda free, HMSI is likely to begin positioning itself to take on the smaller displacement categories more seriously, making for a total package in the Indian market. HMSI already said earlier this year it will be opening a new factory in Tapukara, Rajasthan, hoping to bring total capacity to over 2 million units per year in India. Honda’s move to go solely on its own now, makes that announcement earlier in the year click into place with the company’s current strategy.

Make no mistake, India is the biggest battle ground in the motorcycle industry right now. The second largest motorcycle market in the world, and secluded by protectionist tariff policies, outside manufacturers are having to cozy up to India in a variety of ways in order to get a foothold on the rapidly growing market. Honda marks one of three routes outside companies can enter into India, namely taking a stake with a local brand in a joint-venture. This move has paid off in dividends for Honda, with sales in India virtually saving the company’s balance sheet during the recession, and now positions the brand very strategically in the market for the future.

Another route can be seen by Bajaj taking a stake in KTM, which has allowed both companies to get into markets where they previously weren’t. It is not clear where in KTM’s stock portfolio Bajaj’s appetite will be satiated, but the Indian company seems content on slowly gobbling up the smaller European brand. Bajaj and KTM have looked to Kawasaki for a three-way arrangement, which could see the Japanese manufacturer also gain entry into India, while opening its doors into Southeast Asia.

The last method is what we like to call the loaner (for the pessimistic) or the lone wolf (for the optimistic), and presents itself in the guise of Harley-Davidson. Deciding to forgo partnering with local manufacturers, Harley-Davidson has recently announced its intention to begin assembling cruisers for the Asian market in India. This sidesteps importation issues in the country, and with the Milwaukee brand opening more Harley-Davidson dealerships throughout India, the company seems content on building into Asia without assistance.

It will be tough for Harley-Davidson and other brands like Ducati, which are using a similar strategy, to compete with the rapid growth seen by Honda, while it will be interesting to see how KTM can leverage its partnership with Bajaj to catch up and compete with the Japanese company. One thing is for certain though, as sales get more scarce in traditional markets, the competition is going to heat up in India, and things could get ugly. We can’t wait for the melee.