Honda Motorcycles puts on hold third production line at Gujarat plant

Publish October 27, 2020

A contracting market for the last two years and the uncertainties after the COVID-19 pandemic have forced the country’s largest scooter maker to put on hold its expansion plan.

New Delhi: Honda Motorcycles and Scooters India (HMSI) has put its plan to build a third production line at the Gujarat facility on hold due to falling demand, a senior company official told ETAuto.

“The third line with a capacity of 600,000 units at the Vithalapur plant in Gujarat, has been put on hold and it may take another two to three years to reach the expected demand and start additional production,” YS Guleria, director - sales and marketing, HMSI, told ETAuto over the phone. According to the earlier plan, production at the third line should have commenced from this year.

The plant that was built in 2016, investing about INR 1,100 crore with an installed capacity of 1.2 million, is fully dedicated for scooter manufacturing. The new line was mainly for the production of motorcycles.

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HMSI had the idea of dethroning its arch-rival Hero MotoCorp from the pole position in the Indian two-wheeler space by increasing its capacity and market share.%

The Indian automobile industry has had the worst demand contraction and negative growth rate in the past two years, during the last two decades. The outbreak of COVID-19 aggravated the problem, and the H1 of 2020 pushed back the volumes by at least seven to eight years to 5.9 million units.

The main factors that contributed to the shrinking sales were the floods in Kerala in 2018, followed by a weak festival period, an increase in the cost of vehicle acquisition, low demand in rural markets and liquidity crisis. Moreover, a slowdown in economic and industrial activities and weak consumer sentiments catalysed them further.

Increase in the vehicle acquisition cost has been owing to reasons like the upfront collection of long-term third party insurance on purchase of two-wheelers, transition to BS-VI, and implementation of various regulatory and safety norms over the past two years. Difficulty in the availability of finance after the IL & FS crisis also added to the woes.

The two-wheeler arm of the Japanese auto major opened its first production facility at Manesar (Haryana) in 2001; a decade later it added the second plant at Tapukara in Rajasthan. Seeing the rapid growth, it opened the third plant at Narsapura in Karnataka in 2013, and the fourth in Gujarat in 2016. The company has a total capacity of 6.4 million units.

A peculiar concern for HMSI, the country’s largest scooter maker, is that a post-pandemic recovery is coming via rural to urban markets.%

Cautious recovery

A peculiar concern for HMSI, the country’s largest scooter maker, is that a post-pandemic recovery is coming via rural to urban markets. The current pace of recovery has been much faster in the rural market established by the bumper sales of tractors and quick rebound in the motorcycles segment, which is largely a rural phenomenon.

In Q2 of fiscal 2021, when the recovery started, two-wheeler sales rebounded to almost 99.08% in which scooter is still negative by 16% while motorcycles surged by 8% year-on-year.

However, in the past two months, recovery in the urban area also has started. “We have seen a good number of new PF accounts being opened, thus indicating that people are returning to their jobs in the cities. We have also seen the rate of retail financing increasing to almost 45% from about 35% in the pre-COVID-19 times,” Guleria said.

He added that the company had seen better retail during this festive season than that of last year. It had 40% more enquiry growth and 45% more customer walk-ins during the pre-festival period, a fortnight before the festival, than in the 2019 pre-festival period.

The dispatch numbers shared by the Society of Indian Automobile Manufacturers (SIAM) show that scooter wholesales have rebounded 100% to 556,205 units in September 2020 compared to the same month a year ago.


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