Honda vs Maruti: Will the DZire now cease to Amaze?

For an industry mourning its worst year in a decade, the launch of Honda's Amaze is a breath of fresh air. The entry-level sedan is priced aggressively, starting at Rs 4.99 lakh for the petrol variant (ex-showroom Delhi). With its first-ever diesel offering in India, better engine performance, best-in-class mileage, Honda Amaze more than holds a candle to Maruti Dzire, except on one front: the Japanese carmaker's market reach in India is limited with just 150 sales outlets against Maruti's 1,200-odd.

Will Amaze help turn the tide for the industry? Will it be a game changer for Honda? Will Maruti Dzire finally be challenged? And will this finally kick-start a transition from a compact-loving India to a nation of sedan lovers? Here are some of the implications of the Amaze launch:

For Honda

Honda, once the king of premium cars in India with the City and Accord models, has steadily slipped on Indian roads. Its market share has declined from 5.52% (passenger vehicles) six years ago to 3.86% in fiscal year 2013. Despite its strong branding, it has struggled to get the right product at the right price to India.

The absence of a compact till late 2011, when the Brio was launched, the cold response to premium compact Jazz because of its stiff price tag and the absence of a diesel offering significantly constrained Honda's India moves. Amaze should be a game changer for the company. It marks a big shift in the way Honda looks at India. Managing director Hironori Kanayama says Amaze will help expand Honda's market presence from just a tenth of it to half. And with a diesel variant, Honda is now ready to take on market leader Maruti Dzire.

Industry experts expect Amaze will sell between 3,500 and 4,000 units every month in the near future. Amaze also proves that Honda is finally learning to trim costs and live with slimmer margins in India. "Honda has traditionally maintained a brand premium, reluctant to compete on prices. This is the first time it is taking on market leader Maruti on pricing. It marks a big shift," says Deepesh Rathore, MD, IHS Automotive (India), an automotive strategy and analysis firm.

Honda is also trying to connect better with Indian consumers by launching ad campaigns in regional languages for both print and TV with the tagline "Badle Aapki Duniya" ("Changes Your World").

For the Industry

These aren't good times for the car industry. In fiscal year 2013, total sales dipped 7% over a year ago to 1.89 million units, the worst performance in over a decade. In an industry that typically saw 20-plus launches every year, 2013 will see very few model launches. In that context, Amaze stands out. Ford EcoSport is the only other big launch slotted for the year. So will Amaze help turn the tide for the industry? That's unlikely. At best it will add 50,000-odd units to the overall 2 million annual sales, a few drops in the ocean. But it should certainly help turn around sentiment something the industry badly needs. The Amaze launch can help increase footfalls in Honda showrooms, says Mohit Arora, executive director of JD Power (Asia-Pacific).

Honda Amaze debuts in a segment which already has Maruti Dzire, Tata Indigo and Toyota Etios. But the only competitor that matters is Dzire which, with sales of 18,000 units a month, lords over three fourths of this segment. "So far, buyers had no choice. This is the first time Dzire has got some real competition," says V Ramakrishnan, senior director at Frost & Sullivan India. Amaze's price ranges between Rs 4.99 lakh and Rs 7.6 lakh vis-avis Dzire's Rs 4.92-7.5 lakh band.

So, yes, Amaze is well placed to eat into Maruti Dzire's dominant share. However, some experts see an unlikely sideeffect — the Amaze cannibalising, albeit marginally, Honda City sales. They expect Amaze to expand the entry-level sedan segment, luring compact buyers to upgrade and perhaps nudging sedan buyers to downgrade.

For the Segment

The entry-level sedan (sub-4 metre) is a uniquely Indian segment, found nowhere in the world. It is a compact car in every way but with a small boot slapped on it. It owes its origins to the lower excise duty on sub-4 metre cars. The segment is a win-win for buyers as well as manufacturers. For a car buyer, the sub-4 metre offers advantages of a compact with sedan-like comfort at a slightly higher price. And it allows carmakers to leverage their compacts Amaze has emerged from the Brio and Dzire from the Swift) to launch a new car that offers better margins with minimal investments.

Not surprisingly, the segment is growing well. At 2.26 lakh unit car sales in fiscal year 2013, it grew 21% over a year ago even as industry sales shrunk by 7%. "Dzire was a big hit. It understood Indians' value-for-money psyche well. But it was not aspirational. Honda's entry will change that," says Ramakrishnan. Rathore sees this segment grow at 50% for the next three years.

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Auto MNCs are waking up to this segment's potential in other markets such as North Africa and the ASEAN. Other players too may be readying their models. M&M's Verito Vibe (sub-4 metre) is in the pipeline. There is a buzz that VW and Hyundai may also be working on sedan versions of their Polo and i10 compacts.Honda Amaze debuts in a segment which already has Maruti Dzire, Tata Indigo and Toyota Etios.

But the only competitor that matters is Dzire which, with sales of 18,000 units a month, lords over three fourths of this segment. "So far, buyers had no choice. This is the first time Dzire has got some real competition," says V Ramakrishnan, senior director at Frost & Sullivan India. Amaze's price ranges between Rs 4.99 lakh and Rs 7.6 lakh vis-avis Dzire's Rs 4.92-7.5 lakh band.

So, yes, Amaze is well placed to eat into Maruti Dzire's dominant share. However, some experts see an unlikely sideeffect the Amaze cannibalising, albeit marginally, Honda City sales. They expect Amaze to expand the entry-level sedan segment, luring compact buyers to upgrade and perhaps nudging sedan buyers to downgrade.