Is Honda about to merge its Indian car and bike operations?

New Delhi: It has taken inordinately long for Honda Motor Company (HMC) to consolidate its car-and-bike operations in India. Is that about to change now? A person familiar with the situation told Firstpost on Saturday that there may be some truth to reports about HMC planning to merge its car and two-wheeler businesses into a single entity in India.

Honda has a joint venture with the Siddharth Shriram Group, called Honda Siel Cars India (HSCI), which makes and sells cars such as the City, Jazz, Brio and Civic. It also has a wholly-owned arm, Honda Motorcycle & Scooter India (HMSI), which is the third largest two-wheeler company in India, having recently overtaken TVS Motor. It is a market leader in variomatic (gearless) scooters.

According to a report in Business Standard, HMC is considering a merger of these two companies into a single entity. Jnaneshwar Sen, Senior Vice-President (Marketing) at HSCI, termed this report as mere speculation, saying there was no such proposal before the company.

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[caption id=“attachment_261981” align=“alignleft” width=“380” caption=“While HMSI has been quite successful in its domain of two-wheelers, the car business has not been able to make a big dent in the Indian market. Reuters”]  [/caption]

But a person familiar with developments said that HMC’s intent to consolidate its automobile businesses in India has been on the table for some time now. “Such a proposal (to merge two arms and increase consolidation) is discussed off and on. HMC indicated the general direction when it set up Honda Motor India (HMI), a new entity, some five or six years back to bring all parts procurement for HSCI and HMSI under one umbrella,” this person said.

It is interesting to note that while HMSI has been quite successful in its domain of two-wheelers by launching aggressive and differentiated products in the market, the car business has not been able to make a big dent in the Indian market.

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Between April 2001 and February this year, HSCL reported a 22 percent decline in sales largely on account of production constraints after the tsunami in Japan, followed by floods in Thailand. In addition to production constraints, HSCI is also crippled by the lack of diesel engines when the Indian market is showing increasing preference for diesel cars. Sen of HSCI said his company is expecting double-digit growth in 2012-13 over this fiscal and is certain of growing faster than the overall car market.

But HMSI has been successful from the beginning. Between April and February this year, sales were up 26 percent to 17,83,505 units and the company has already left behind TVS in domestic sales. Also, after Honda parted with the Hero Group in December 2010, HMSI is only growing stronger with greater spends on brand promotion and expansion of the dealer network.

So how does merging the two companies, one of which is not doing too well, help?

The person quoted earlier said HMC has a single entity everywhere else in the world and doing so in India would “bring synergies of cost, branding and manpower management”.

He said that though common sourcing of parts did run into trouble for years (under HMI), this aspect of the business has now been synergised. “When HMI was initially established, there were lots of problems such as the inability of its management to understand the different requirements of two-wheeler dealers and car dealers. But, gradually, things have been sorted out. Now, if HMSI and HSCI were to merge, greater synergies could be explored”.