Tuesday, February 3, 2009

Honda : What Next

Honda Motor Co. is looking beyond Brazil, India and other big emerging economics for the next phase of growth at its motorcycle business by working its way into markets where small, no-name Chinese and Indian brands have grabbed the lead. However, the company has declined to give timeline for entering the “Next” markets.

Honda, the world’s top motorcycle maker with a share of roughly 30 per cent, has been growing consistently - thanks to surging sales in Brazil, Vietnam and Indonesia. But it misread latent motorcycle demand in Africa, Eastern Europe and most of Latin America.

“We realized about two or three years ago that we had underestimated the pace of income growth in these countries, “Tatsuhiro Oyama, chief operating officer for Honda’s motorcycle operations, told.
“In the meantime, Chinese and Indian makers came in and created a significant market of cheap motorcycles and we found ourselves behind, “ he said.
Honda estimates global motorcycle demand at around 50 million units this year, of which just 4 million or so are in the United States, Japan and Western Europe. Around 38 million was in Southeast Asia, China, India and Brazil, where Honda leads Yamaha Motor Company.

Oyama said the other grouping – which Honda has internally started calling the “Next” markets – will account for roughly 8 million new motorcycle sales this year.

Honda is trying to come up with a winning strategy for these markets, where const-competitiveness will be key. Oyama said. That probably meant making more use of low-cost countries such as China and India to develop and build such products – something he said Honda not done effectively until now.

“UP to now, we have relied on Japan for product development, and then we had built locally. But China is fast becoming the benchmark for low-cost bikes so we have to change our ways.”

No Timeline:

Though Oyama did not say when they will enter the markets in earnest, but said it was urgent. He had been to Argentina last week, and was off to lean about the Nigerian market next month, he said.

For this year, Oyama said Honda expects to boost motorcycle sales by more than 10 per cent to around 15 million units.

“People talk about the car business being difficult, but you don’t hear that about the motorcycle business. That’s because all the economic growth is happeing in “developing markets’, and that’s where most of the motorcycle demand is,” he said.

Japan’s No. 2 carmaker, which began as a motorcycle maker in 1949, sold 13.5 million motorcycles worldwide in 2007, and has a goal of lifting that by a third to 18 million units in 2010.

Oyama said potential sales from the “Next” markets were not part of the 2010 target, meaning the 18 million figures was the “very minimum” Honda expects to sell in 2010. There were also signs of a pickup in demand for commuter bikes in North America as consumers seek fuel efficiency, he said.

Honda’s motorcycle business tends to fall under the radar but its contribution to the company is sizeable and growing.

The division made up around 13 per cent of Honda’s total revenues in the business year to end-March 2009but accounted for 16 per cent of operating profit.

Honda’s motorcycle division has a higher profit margin than that from cars. Last year, the division had an operating profit to-revenue margin of 9.7 per cent against 7.0 per cent for the car division.
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