Earlier this year, we heard from many experts and from the interested parties themselves that the Hero Honda relationship would continue for some time. It seemed like the Indian market was large enough for two Honda motorcycle distributors to serve it without issue.
However, after some recent disagreements between parent company Hero Group and Honda Motor Company of Japan, it looks like plans are in the works for the two companies to dissolve their long-standing partnership. That will leave only Honda Motorcycles and Scooters of India (HMSI) as main manufacturer of Honda motorcycles and scooters and distributor on the Sub-Continent.
The row mostly concerns certain demands which Honda has placed on the Hero Honda company. One conflict came about when Honda told Hero Honda that they must increase their purchases of motorcycle and scooter components from HMSI. The idea was to increase its revenue from the joint venture (JV), and this seemed like a logical step.
However, Hero Honda did not take too well to being told where to buy their parts. Another major point of contention rides on the agreement between the two companies; Hero Honda is not allowed to export anything they manufacture in India. This is a big deal as other similar motor vehicle companies are exporting their wares worldwide and bringing in sizeable profits from this.
The official partnership is scheduled to end in 2014 as that is when the current 10-year deal runs out. Meetings are already scheduled to take place – planned for outside of India – where discussions will commence on who will buy out who. Their deal allows either of the tow partners to buy the other out at a 30-40% discount. If one party is unhappy with the other’s offer, there are mechanisms in place for a counteroffer.
Honda is keen to keep their profits rolling in and Hero Group is quite successful at selling motorcycles and scooters. Hero is already setting up a research and development center for after this process is complete.
The future of motorcycling in India could change significantly depending on the outcome of this situation. Hero Honda is the largest producer and seller of motorcycles in the nation, so what happens here may alter the market for decades to come.
UPDATE: Just as this article was being published, Hero Group announced that they intend to buy out Honda’s 26% stake in the JV. The total price is to be around $1.9 billion and it will be paid in phases over time with new debt to be taken on by Hero and its billionaire Chairman, Brijmohan Lall Mujal.
Written by J.C. Current, Courtesy of AllAboutBikes.com