Written by Ammar Master, manager, LMC Automotive and a contributor to the ASEAN Automotive Monthly—Market Trends for J.D. Power Asia Pacific
Honda Group is getting ready to renew its competitive position in India’s passenger-vehicle market by introducing a slew of diesel models, starting with the soon‐to‐be‐launched Amaze sedan and Brio hatchback.What’s notable is that most Honda models will be equipped with a diesel engine. The only exceptions may be the Civic compact car and Accord midsize sedan.
No doubt, Honda expects sales to improve in a big way with the launch of its diesel versions. However, LMC Automotive is more cautious since the government has sent a strong signal towards eventual deregulation of diesel prices in India. Admittedly, India’s government has not announced a price increase in diesel fuel, but it has put the onus on oil marketing companies to raise rates gradually in small proportions to bring them in line with global prices. As a result, the 40% price difference between petrol (gasoline) and diesel will slowly change over the course of the next year.
Diesel Amaze and Brio Hatchback to Launch in India Market
Having said this, we agree that having a diesel option is a must in India. Honda, therefore, is on course to correct a major disadvantage in India. We think combined sales of diesel versions of the Amaze and Brio models could make up about 60% of overall volume.
After tasting success with its first two diesel models, Honda also has plans to fit the City sub-compact with a diesel powertrain by the first quarter of 2014. Similar to the Brio and Amaze, diesel sales of the City are also likely to be higher than the petrol version. Estimates for the City diesel are for a share of 50‐55% of the model’s total sales.
Honda’s Jazz hatchback also should have a diesel option for the 2014 model year, with diesel share estimated at about 55‐60% of all Jazz sales.
Next in the lineup of diesel entries will be the Brio‐based MPV and a new small compact utility vehicle (likely to be named HR‐V). Both of these models are due to come out in 2015 and will only have a diesel option in the India market. It’s estimated that sales for these models will likely be between 15,000-30,000 Brio MPVs and 12,000-25,000 for the HR-V.
There is also some indication that the CR‐V may be equipped with a diesel engine by 2016 or 2017. A majority of CR-V sales likely would be of the diesel variants.
Honda Diesels May Make up Two-Thirds of Company’s Sales in India
Within the next several years, Honda’s diesel models should account for roughly 60‐70% of its total volume in India.
All of Honda’s diesel engines are to be produced at a new plant the company is setting up in Khushkhera, Rajasthan (the largest state in India). The automaker has not announced investment details or the capacity of its diesel engine facility.
Nonetheless, the diesel engine manufacturing unit is likely to have an initial build capacity of 100,000 units per year, which will likely be ramped up to 300,000 units over the course of 5 years.
There is, however, a downside risk to our projections of Honda’s diesel model sales. Volumes are likely to be lower if the price of diesel in India rises too quickly and by a heftier hike than our expectations.
More importantly, a strong rise in the price of diesel could also hurt the entire auto industry, which in the past year has been bolstered by robust sales of diesel vehicles. There is also another concern about the actual impact of the increase in diesel prices on inflation and India’s economy.