Team-BHP - Honda sacrifices profit for sales!

No one can match Maruti's efficiency & scale. There isn't a doubt that Honda has a higher cost structure. At the time of the launch, Honda didn't even have enough production capacity for the Amaze, hence they could've gotten away with selling whatever they made at a higher price.

Yet, they didn't. The Amaze was priced on par with the Dzire. The margins must be well & truly S-L-I-M. Why? Honda is keen to shake off the overpriced image from its products, and is incredibly hungry to regain lost market-share.

Nice article, thanks for sharing.

Quote:

Originally Posted by GTO (Post 3312311)

IMO the profit will go down further once the Jazz and the CRV get a diesel heart!

Honda must ramp up their production capacities to keep up with the demand that Amaze has brought in. A third shift production will not help matters much but nevertheless a good risk from Honda and it is paying.clap:

Honda - U rock!:thumbs up

Anurag.

IMO this is the latest series of bulls**t (this time in part for good) from ET.

Sorry for being blunt, but, Honda is expanding its manufacturing operations in India (new plant in Rajasthan)... obviously they are investing heavy, & returns haven't yet started flowing in (till 31 Mar 13), which has simply reflected in lower profits for the car business.

If I am not wrong the situation in bikes business is almost the same. Some good reasons are mentioned in ET like getting a celebrity endorsement & rising input costs are noteworthy.

However, Japs are generally very cost efficient & it is evident from the fact that one of my acquaintance was able to get Rs.3 lacs off on old GXi (purchased in 2008 end) because some of her relatives was at senior position in Honda regional marketing office in UP. Yet the exec joked to her later that the company made profit on the sale.

Their margins are are much higher as compared to Suzuki (except for their fast selling premium products), & this has helped then weather the US market slowdown (aptly aided by their superior quality). Moreover, there are hefty royalties in place, which ensure the Indian operations can show lower profits & thus lower (multiple) taxes as compared to Japan.

I believe ET is gradually shifting from being a newspaper that used to disseminate useful information to speculative news to add to market volatility at the expense of uninformed reader.

Honda took a lot of time to realize that the Indian market started drifting towards diesel cars because of huge gap between the petrol and diesel. They entered Indian market and was considered a premium brand which was meant for a certain class. However, when the sales of city, civic, accord and CRV dropped drastically, they gave a serious thought on diesel. This is when it started losing ground to competitors and the balance sheet turned red.Then there was another challenge " How to enter mass market" and simultaneously bridge the gap between the masses and classes. People in India swear by brand Maruti and the perception of affordability, easy maintenance with best in class after sales service is in-fact, a tough job for any car manufacturer to change. Honda did try aggressive pricing and affordability of spares with Amaze and was successful. Though, they will find it tough to reach the scales on which maruti operates, but one thing I am sure and confident about is that with the launch of new products like the Jazz, City, Mobilio, they will not only report profit but will also give a tough time to the likes of Verna, Vento which flourished because of diesel advantage.

Quote:

Originally Posted by GTO (Post 3312311)

The Amaze was priced on par with the Dzire. The margins must be well & truly S-L-I-M. Why? Honda is keen to shake off the overpriced image from its products, and is incredibly hungry to regain lost market-share.
Nice article, thanks for sharing.

Totally agree on the hungry for sales part and shed the overpriced images, but the Amaze anyways should not have been priced way above the desire. Apart from more space, the DZire scores against the Amaze in many departments
- way better interiors to look at
- balanced suspension comparatively
- slightly more FTD
- refined powerplant in the diesel
- Amaze feels more built to cost than the Dzire.

Also, the Amaze price apart from the segment also has to be derived from the Brio as a benchmark and the Brio is atleast 50k cheaper than the Swift from which the desire is derived.

But no doubt the Amaze is a Value buy. The discounts on the DZire are in a big way thanks to the Amaze.

Highly doubt the Amaze is selling at thin margins. Addition to the Brio, the manufacturing cost for the Amaze should not be more than 25k against which the Amaze costs 3 times this difference. So the margins are pretty decent. Hence the Honda is not worried about the slow selling Brio as long as the Amaze churns out numbers.

Quote:

Originally Posted by riteshritesh (Post 3313100)

With reference to HMSI, looks like me purchasing the Yamaha Ray, caused a hole in their pockets. :-)
I had written to HMSI about their dealer's( Pilot Govandi) " care2hoots" attitude had me dissed off and made me buy a Yamaha instead.

Even my brother went ahead with suzuki access instead of honda activa, just that they didn't even bothered to share a catalogue. This was common among few honda dealers here.

Honda truly is very late to the diesel party. Now, when the Oil minister has stated that Diesel prices are going to be on par with the petrol prices in about 6-7 months time. I am quite baffled by seeing the huge Dieselization of the Indian market and am frankly confused if I should go ahead with buying a Diesel car now. While Diesel vehicles do generally give a better mileage, they are expensive to buy, maintain and are not as refined. I seriously don't understand in what direction the Indian market is heading. :Frustrati

No wonder Honda is slated to hike the prices of its lineup with what it is upto. Of course, besides the fact that the inflating economy is a given.

I would rather see it the way, Honda is not pushing its marketing folks enough to convince the customers to get to the middle and top end of the variants. If the car is feature-loaded to its gills across the variants, it is never hard to convince a potential entry-level variant buying customer into a mid one, and a mid one into a top end variant. Honda, you are making the right moves, but make them smarter! :mad:

I am NOT really sure Amaze is making losses. The car has spartan interiors and lesser features with just the engine having an edge over Dzire and is still priced at par. We also need to remember that Dzire pay hefty royalty to Fiat for the engine, so that also is factored in Dzire's price.

I will be inclined to think that Amaze does make handsome profit with the current price and should have accounted to reducing the margin of losses. The losses might be due to the weak sales and the other expenses which has to happen inspite of the low volumes.

Diesel models are gradually losing the only advantage it had all these years-fuel price. With the ministry having declared that diesel prices will be deregulated within the next few months,I think Honda was very late in introducing diesel models. Even with the diesel City, I think the next year will also be tough for them. And if they are going to re-launch the all new Jazz/Fit, I sincerely hope that they do it with a different name. Not with the same name which failed here once.

Quote:

Originally Posted by CARDEEP (Post 3312420)

My apologies, but I don't completely agree. Technically, accounting doesn't treat investments in plant and machinery as an expense. These investments (usually called CapEx) are capitalized and depreciated over a period of many years. I 'believe' there are other factors on play here.

Margins on your products is definitely one of them. Margins are decided by the price at which you are selling your product and cost-structure. Honda traditionally commanded a premium for their products (they aren't doing it with Amaze). At the same time, their input costs (COGS - cost of goods sold) are rising. What is more, their other costs (SGA - sales, general, administrative) are rising because of celebrity endorsements.

In other words, recent investments in plants is a factor, but not the only one and not the most important one. There are other things here.

I agree with the last part though. ET doesn't do a good job with reporting news as facts.

Quote:

Originally Posted by aslambhai (Post 3314435)

My apologies, but I don't completely agree. Technically, accounting doesn't treat investments in plant and machinery as an expense. These investments (usually called CapEx) are capitalized and depreciated over a period of many years. I 'believe' there are other factors on play here.

Margins on your products is definitely one of them. Margins are decided by the price at which you are selling your product and cost-structure. Honda traditionally commanded a premium for their products (they aren't doing it with Amaze). At the same time, their input costs (COGS - cost of goods sold) are rising. What is more, their other costs (SGA - sales, general, administrative) are rising because of celebrity endorsements.

In other words, recent investments in plants is a factor, but not the only one and not the most important one. There are other things here.

I agree with the last part though. ET doesn't do a good job with reporting news as facts.

agree: with the highlighted part, but won't you agree that in the initial years of capex the charge of writing off the capex (plant, tool, dies, etc) against the profits would be higher as compared to later years. And, this is one of the major reason why in the later years the older models turn cash cows. obviously, there are other costs associated with hiring of staff, training & other expenditure that is written off in books as expense (especially under IFRS).

I believe there is more than what meets the eye in this case, either at Honda's end or due to ET's reporter stupidity/ naiveness. Either way it will be gullible investors & buyers who will be duped to buying age old products (bikes ~ cash cows) or products at a premium, which border vulgarity (cars)... & this i the basis of my original post in the thread.

PS : You appear to be a bigger Chelsea fan than me. At least we agree here stupid:.