In an interesting article in the Wall Street Journal Honda has revealed how rising raw material costs are influencing long term strategic decision making at the firm.
Honda have been reviewing its strategy for India where Tata Motors announced their $2500 Nano entry level car earlier this year. After 20 years of manufacturing in the Indian market, Honda has more than half of the country’s 8m annual sales of motorcycles/scooters and 30% of the premium market for cars. So they have a lot to lose if they get their market positioning wrong. To put this in perspective their most expensive motorcycle, the Unicorn, sells for $ 1,400 yet its cheapest car the Civic sells for $16,500. To bridge the gap Honda is introducing a lower cost model based on the Fit but it will not be less than $10,000.
Apparently Honda has looked at the concept of producing a competitor to the Nano but they do not believe it can be done while still maintaining quality. Commenting on the whole concept of Tata’s Ã‹Å“car for the price of a bike’ approach Honda is quoted as saying the economics of producing a low cost car would be challenging, especially with raw material costs rising sharply. It will be interesting to see how long Tata manages to keep the Nano at $2500 before rising raw material costs start to push up the price.