Honda City volumes hit by increasing demand for petrol cars

Honda City
City, the country’s largest selling sedan (in the above-four-metre segment) from Honda, is facing the heat of shifting consumer preference for petrol vehicles. The action and criticism against diesel vehicles is impacting purchase behaviour.

In February, City’s monthly volumes fell below 5,000 units for the first time in many months, making rival Ciaz from Maruti Suzuki the largest-selling sedan that month. However, City reclaimed the top position in March.

City, which is Honda’s largest-selling model, clocked average monthly sales of 6,700 units during the 10 months ended January 2016. The average for February-March, however, dipped sharply to 5,271 units. In contrast, the Ciaz, which had average monthly sales of 4,359 units during the April-January period, improved its performance to 5,321 units for February-March.

“There has been a drastic shift in the petrol: diesel ratio for Honda City in the last quarter as compared to Q4 of 2015. We are adjusting our production mix to manage the change in demand of petrol cars,” a company spokesperson said. Honda sold 77,548 units of the City in FY16 in the domestic market, marginally up from 77,384 units in FY15. The model accounted for over 40 per cent of Honda’s total domestic auto sales of 192,059 units in FY16.

The company said 40 per cent of City buyers opted for diesel variants in the October-December period of 2015. But that demand came down by 30 per cent to just 28 per cent in the January-March quarter of 2016, making it a challenge for the Japanese carmaker. Adjusting the production and component supply chain to meet this change takes a minimum of three-four months. Honda enjoys the flexibility to switch between diesel and petrol models.

The Supreme Court last December banned sales and registration of diesel vehicles with an engine capacity of 2,000 cc and above in the National Capital Region, impacting companies like Mahindra & Mahindra, Toyota and Mercedes.

While the City does not fall under this ban with its 1,500cc engine, the shifting preference in the buying behaviour of customers towards petrol cars is evident in its volumes. Ciaz, the first successful attempt by Maruti Suzuki, to establish itself in the above four-metre sedan segment, was launched in October 2014 and it has emerged as a serious competition to the City.

The company has sold a total of more than 87,000 units since then in domestic market. More than 17,000 units have been exported. Diesel sales account for about 60 per cent of the Ciaz’s volumes and that has remained unchanged.

“We have sold 5,000 units of Ciaz every month in recent times. We are coming closer to the largest-selling sedan. The introduction of hybrid feature has increased volumes and we expect volumes to go up,” said R S Kalsi, executive director (marketing and sales) at Maruti Suzuki.

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