One size fits all, but it needn’t necessarily be the best. Honda has so far been using the ‘one-spec-fits-all’ strategy for its global car models and has finally decided to ditch the method. Wonder why? Well, Honda is eyeing the success of its rivals like Hyundai Motor which have been doing very well in emerging markets.
Honda is currently Japan’s #2 car maker, and a new strategy could help it move closer to the topmost position. Honda has until now kept quality as priority and has developed cars taking into consideration the worst conditions in all its markets. Looks like the strategy hasn’t helped a lot. The car maker has had a common blueprint for car components built and sold globally to maintain optimum efficiency in its cars around the world. The global models would carry the same specifications in all markets.
But now, Honda’s purchasing operations head, Masaya Yamashita feels that the strategy is obsolete. The car maker has realized that it has been making some of its new cars needlessly costlier in emerging markets like China, India and other regions, at a time when South Korea’s Hyundai and others are boosting sales with cars that are a better fit.
“Hyundai has become a very tough competitor for us and they’re growing at an incredible pace, along with Chinese and Indian automakers,” said Yamashita in an interview with Reuters. “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,” he said.
“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.”
Honda gives the following example: “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.” 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 home-grown parts makers in emerging markets.
Components must meet the highest common denominator for specifications, leading to steep costs, 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 added.
Honda’s Fit is known as the Honda Jazz in some markets including India. Besides India, the car is also sold in the Japanese, Chinese, Indonesian, Britain, Brazilian and Thailand markets. However, the same design is maintained across all seven countries and materials for most components in all seven nations are the same.
At a time when Japanese suppliers are already under pressure to cut costs disadvantaged by a strong yen, Honda felt there was little it could do immediately to avoid currency-related losses. Yamashita, however, 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.” Let’s wait and watch where Honda heads!
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