Honda's Brio: Can it gain at Maruti's expense?

Even as other car makers herald the festival season with a string of shiny models and discounts, India's largest car maker, Maruti Suzuki, continues to be hobbled by labour unrest and production disruptions, which threaten to significantly affect its sales during this traditionally high-demand period.

The latest to debut a model in the hotly competitive compact car segment is Honda Siel, which finally launched its eagerly-awaited offering, the Brio. The company says the model is its "most focused product" till date.

With a starting price of Rs 3.95 lakh (ex-showroom Delhi), it is Honda Siel's cheapest offering. Its other offerings have been primarily in the low-volume premium sedan segment of the car market, and include models such as the City and the Civic Accord.

 Hondas Brio: Can it gain at Marutis expense?

Maruti Suzuki, continues to be hobbled by labour unrest and production disruptions. Reuters

With its aggressive pricing, the Brio, powered by a 1.2-litre petrol engine, will challenge Maruti's Swift, Hyundai's i20, Ford's Figo, Volkswagen Polo and Toyota Liva. The premium hatchback segment is one of the fastest growing segments in the domestic market. As many as 439,000 units were sold last year.

Apart from the Ford Figo, which comes at an ex-showroom price of Rs 3.69 lakh, Brio will be the cheapest offering in this segment. In comparison, Maruti's upgraded Swift retails at Rs 4.22 lakh in Delhi. To keep costs - and retail prices -- low, Honda Siel has used 125 Indian supplies to ensure that up to 80 percent of the car's components are local and, therefore, cheaper.

Furthermore, the base version will not have some safety features, such as airbags, that have been standard in all models of cars that the company has sold so far.The company has said it hopes to sell up to 4,000 units initially. The model will be available at 135 sales outlets in 83 cities. Another eight outlets will be added by the end of March 2012.

Such a determined attempt by Honda is likely to affect Maruti Suzuki, which currently accounts for about 47 percent of the Indian car market. The company has been gradually losing ground to new, more aggressive rivals over the past few years. In August, the company vowed to regain 50 percent of the domestic passenger car market by the end of this financial year (ending March 2012), but that looks increasingly unlikely.

Continuing labour unrest at its Manesar plant - the factory that was supposed to produce the newly-launched Swift - has forced production to resume in fits and starts. While the company has been enlisting the help of other workers from other locations to replace the striking ones, the labour dispute drags on, leaving Maruti operationally exposed and unable to focus on customers and sales.

The upgraded version of Swift, the company's best-selling model, had received an overwhelming pre-launch response, but its production problems mean that there will be delays in making customer deliveries. That could force potential new buyers to seek other options - and Brio with its aggressive pricing, could emerge as a real threat.

For Honda, this is an opportune moment to get the better of market leader Maruti Suzuki. The Japanese company's Indian unit has also been struggling as sales of its more expensive sedans have dropped in recent months. In addition, rising competition forced it to cut prices on the City and Jazz models. The company expects the Brio to transform Honda's fortunes in India: officials said compact cars would become Honda Siel's "second pillar" of business.

Of course, all this comes at a time of evaporating demand for cars. Indeed, the flurry of launches by various car companies is intended to lure customers, hit by high fuel costs and high interest rates, back into the showrooms. Petrol prices have jumped by 40 percent since April 2010, which have affected car sales. According to a Macquarie report, Maruti is likely to be the most affected by this trend, as petrol cars account for more than 75 percent of total sales volumes. Of course, that could prove to be Honda's handicap too: the diesel variant of Brio will only be available by 2013/14 .

Moreover, the brokerage estimated that the cost of car ownership had climbed by 20 percent for car buyers, who are already burdened by high inflation. Still, in the race to grab a greater share in the world's second fastest-growing car market, a revved up Honda seems ready than ever to take on the market leader.

Updated Date: Dec 20, 2014 04:33:48 IST