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Old 27th September 2010, 10:56   #1
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Smile Honda thinking on new strategies !

Honda Motor Co will overhaul its sourcing strategy by ditching its one-spec-fits-all method on global car models to better compete with Hyundai Motor and others in emerging markets.

Honda, Japan's second largest automaker, has until now used a common blueprint for components on cars built and sold globally for efficiency's sake, and to offer consumers around the world the same specifications for those models.


But Masaya Yamashita, head of Honda's purchasing operations, said that strategy was outdated and making some of its cars unnecessarily pricier in China, India and other regions at a time when South Korea's Hyundai and others were boosting sales with cars that were a better fit for local consumers.

Hyundai has become a very tough competitor for us and they're growing at an incredible pace, along with Chinese and Indian automakers, because they're looking at components from a new angle," Yamashita told Reuters in an interview.

"The stereotype used to be that the cheap prices came from lower quality, but that's no longer the case. We need to operate with a brand new standard for components," he said.

By coming up with several different blueprints on vehicle components, Honda would aim to slash purchasing costs on the next-generation Fit subcompact, one of its best-selling models, by about 20 to 30 per cent in emerging markets, Yamashita said. The fully remodelled Fit, expected around 2012 or later, would be the first car to reflect the new sourcing method, he said.

Honda builds the Fit, called Jazz in some markets, in Japan, China, India, Thailand, Indonesia, Britain and Brazil, and currently uses the same design and materials for most components in all seven countries.

That means components must meet the highest common denominator for specifications, leading to steep costs, he said.

"For example, if we were designing a cup, we're designing one that could withstand the intense heat in India all the way up to the freezing weather in Canada, and that's a waste."

BROADER SELECTION

Yamashita said automakers were now able to choose from a broader selection of competitive parts makers in many Asian markets thanks to the expansion of Western suppliers, the entry of Hyundai's Korean suppliers and the improved quality of homegrown parts makers in emerging markets.

"Doing business with new suppliers is helpful in giving us fresh ideas for designing parts," Yamashita said. "In the long run, this kind of competition will also be good for Japanese parts makers that we've done most of our work with so far."

Japanese suppliers are already under intense pressure to slash costs, disadvantaged by a strong yen.

Honda has said there was little the automaker could do in the near term to avoid currency-related losses.

But Yamashita said Honda had asked some of its domestic suppliers to shift production of components manufactured and used in Japan to their Asian factories to lower purchasing costs.

"We usually wouldn't do this for the duration of a vehicle's model cycle, which is typically about five years, but we've asked some suppliers to do this," Yamashita said.

"If the dollar continues to trade around 85 yen, it's inevitable that the import ratio of parts will rise."

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Old 27th September 2010, 11:13   #2
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Well its about time, don't you think. And thanks a lot for the news; I did not have a clue that Honda has not yet leveraged the cost advantage of sourcing components from local markets as well as its competitors have. In retrospect that explains why Honda cars always carry a premium and why the Jazz was overpriced in India, when it was supposed to bring volumes for Honda's India market.
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Old 27th September 2010, 11:14   #3
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Honda and Toyota should stop importing stuff from Japan. Rising Yen against Dollar is sapping a lot of profits out of them ($100's of million).
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Old 27th September 2010, 11:28   #4
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Ohh! So, that explains why HONDA JAZZ interior quality is very good (sold in Europe as well; an area where cheap quality is not accepted); sells in good numbers there.

Also explains why the ANHC interior quality is not so great (sold primarily is Asia where the quality standards are not so great). Although it has been introduced in Europe, Asia remains its primary market.


In retrospect, is that a good thing? Brands have used 'India specific' term the cheapen their product range. I mean if HONDA quality goes down a bit, how does it distinguishes itself from Hyundai, a company which both Toyota as well as Honda consider their chief nemesis! On the other hand, with the current strategy, it becomes very difficult for Honda to compete on price points with other manufacturers. Even VW (traditionally known for providing more quality and build strength) has been able to price its products better than Honda in cases (a.k.a. Vento v/s ANHC).

Overall, looks like a welcome and significant move.

Last edited by Abhi_Automobile : 27th September 2010 at 11:30.
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Old 27th September 2010, 11:52   #5
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Very good move indeed!!!

I really like honda products for their refinement & quality. My only gripes were their senseless pricing. Hopefully this should be corrected now.Actually, they would do better by passing on the cost benefits to the customers by offering more features rather than just reducing the prices. Customers are more VFM oriented now rather than just lower price.

For example, the ANHC with better centre console plastics (wood finish/carbon fibre finish perhaps) better sound deadening & Automatic Climate Control at the current pricing would totally rock. The worst part is that none of these are available in the after market as well. So, even if you want these you can't have them.

In case of the Jazz, a much lower pricing for the 1.2 iVtec as the starting range & with a 1.5 iVtec at current pricing as the top of the range would rock too...
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Old 27th September 2010, 12:17   #6
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Its not ahead other competitors. Its a strategy Hyundai, Suzuki, Nissan and VW have been following worldwide. They tailor models to suit local markets that can be made with locally available raw materials and techniques. It doesn't necessarily equate to lower quality. The ability of a manufacturer to consistently maintain quality over all regions is what earn them their name. Let's hope Honda and Toyota don't lose their way with their new strategies
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Old 27th September 2010, 13:03   #7
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On a slightly different note, Indian suppliers need to boost capacity, as almost all foreign OEMs are sourcing a majority of materials and parts locally. We recently witnessed a parts crisis, especially tyres, when Indian tier 1 suppliers were running lean capacities "anticipating" that demand would not be much. This resulted in a parts shortage for OEMs. The most pronounced was the 3-month wait period for the Polo, because, among other parts, VW did not get enough tyres to keep Polos rolling out of its plant.
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Old 27th September 2010, 16:21   #8
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Cant fault the move on the whole - Honda does need to be as competitive as the next guy. However as abhi_automobile pointed out above, hope they benchmark against VW rather than Hyundai.

But I am a bit worried about the potential implication on Honda's safety-for-all policy. It would be downright regressive if they stopped offering ABS and Airbags in their lower end models in 'price-sensitive' markets like India.

<rant begins> I dont think we are 'price-sensitive', just life-insensitive! It comes from us being value-sensitive rather than price-sensitive. We are happy to cough up if we see the value. Hypothetical example:
"You have to pay 40k more for leather seats sir". Ahh fine...leather I like - the neighbors will be envious. "And 40k for ABS + Airbags sir?" Holy crap no! VW is offering the Vento without these useless things - I save money if I go for it. Shows how much we value-conscious Indians value our own lives. <end of rant>
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Old 27th September 2010, 16:40   #9
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So now Honda will provide Hyundai quality to match Hyundai prices - What's the point then? The consumer might as well buy a Hyundai rather than a Honda in that case.
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Old 27th September 2010, 17:21   #10
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@ACM,

Consumers are already going for Hyundais rather than Hondas for sometime now, without sacrificing on quality.

In India Honda has little to worry especially due to its brand pull, but rest of the world Honda is a credible Japanese car maker and nothing more. They are no more the engineering tour de force once associated with the brand. Hyundai on the other hand have been improving by leaps and bounds.

I fear that the company is falling to the lines of US car makers where bussiness motive overtook any emotional quotient in a cars design.
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Old 27th September 2010, 17:29   #11
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Quote:
So now Honda will provide Hyundai quality to match Hyundai prices - What's the point then? The consumer might as well buy a Hyundai rather than a Honda in that case.
I quoted
Quote:
In retrospect, is that a good thing? Brands have used 'India specific' term the cheapen their product range. I mean if HONDA quality goes down a bit, how does it distinguishes itself from Hyundai, a company which both Toyota as well as Honda consider their chief nemesis! On the other hand, with the current strategy, it becomes very difficult for Honda to compete on price points with other manufacturers. Even VW (traditionally known for providing more quality and build strength) has been able to price its products better than Honda in cases (a.k.a. Vento v/s ANHC).
EXACTLY! There is a reason many people buy HONDA over HYUNDAI. Just as there is reason why people buy VW over HONDA(customers who value general quality over reliability), or vice versa! HONDA has to use this to make sure that it drives the costs down while benchmarking quality standards against VW rather than Hyundai.

BTW, Honda has confessed many times that it considers its benchmark standard as BMW for quality and driving experience!
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Old 27th September 2010, 17:44   #12
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Quote:
Originally Posted by Abhi_Automobile View Post
I quoted


EXACTLY! There is a reason many people buy HONDA over HYUNDAI. Just as there is reason why people buy VW over HONDA(customers who value general quality over reliability), or vice versa!
Your statement gave both sides of the arguement VW sources more local components than Honda and has been able to maintain its international quality. Hyundai sources much more, but its quality is not similar to VW, Honda or Toyota. Its does not depend on the levels of localization, but on the intent of the automaker and the importance of quality in its brand perception.
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Old 27th September 2010, 20:05   #13
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Quote:
Originally Posted by Gooney View Post
Your statement gave both sides of the arguement VW sources more local components than Honda and has been able to maintain its international quality. Hyundai sources much more, but its quality is not similar to VW, Honda or Toyota. Its does not depend on the levels of localization, but on the intent of the automaker and the importance of quality in its brand perception.
I am not sure about VW's localization. They are yet to ramp up on the local vendors and as far as I know, the initial lot of Polo's had less than 50% localization. Interesting thing to see is if VW is able to maintain the same quality one year down the line once their localization % increases.
Normally, quality seems to go down with increase in localization. Hope that is not the case with Honda. Otherwise, what will be the differentiator?
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Old 27th September 2010, 20:53   #14
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There are no issues with India as a component supplier. Honda doesnt supply CKD kits from Japan, they are supplied by vendors in South East countries like Thailand. Honda never had the initiative to use India as a supplier for car components, cause the City sold well despite whatever it cost. Now struggling with the likes of Jazz, they are opening their eyes to pricing their cars competitively. Blaming quality is just an excuse, the problem is there are many who simply buy into the fact that it costs more cos its better. Hyundai has been exporting their small cars to Europe from India and there never was a question of quality. Hyundai has always taken the effort to both source locally and ensure the standards are kept. We benefit from both lower costs and the economic benefits local manufacture brings. Open your eyes and learn Honda.
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