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Home > Business > Special

Honda disputes cheap car logic

John Reed and Bernard Simon in Detroit | January 15, 2008

Honda's chief executive on Sunday disputed the low-cost business model championed by India's Tata Motors [Get Quote], saying that bad roads and high petrol prices would keep many emerging market travellers on motorcycles for years to come.

Takeo Fukui said that Honda was developing a car smaller than its subcompact Fit, but that much of its strategy for new markets such as India would rest on improved motorcycles.

Honda is the world's largest motorcycle producer and owns a stake in Hero Honda, India's largest producer of two-wheel vehicles.

"We are taking a completely different decision than Tata is taking," Takeo Fukui told the Financial Times in an interview at the Detroit Auto Show. "We are trying to go higher up with motorcycles - Tata is going in a different direction."

He said: "If you go into these regions, the roads are full of motorcycles." Petrol was expensive, he added, and "motorcycles have good fuel economy".

Tata last week unveiled the Nano, a $2,500 car aimed at luring millions of new drivers in India off motorcycles and into their first four-wheel vehicles.

Mr Fukui expressed doubt that the car would be exported to other countries.

Honda's planned sub-Fit model would not be as low-priced as the Nano because it would have to comply with Honda's international environmental and safety standards. Tata will initially sell the Nano in India only.

"We are challenging ourselves to develop something that would appeal to customers lower than the Fit," Mr Fukui said.

Such a lower-cost car, he said, could potentially sell 500,000 to 700,000 units a year, in keeping with Honda's other global models such as the Civic. The car would target developing countries and be sold in India, China and other Asian countries, and also possibly in Europe.

The rise of millions of new consumers in countries such as India and China is pushing carmakers to develop low-cost cars. Renault and Nissan are working on a low-cost car to be priced at about $3,000 with Indian motorcycle producer Bajaj.

Toyota is also developing a low-cost car targeting Russia, India and other emerging markets. Tadashi Arashima, who heads the company's European business, told the FT last week that Toyota might build the car at its new plant in St Petersburg, and that its low-cost model would be priced at $7,000-$10,000.

Mr Fukui said he expected cars to become smaller in the US, the company's biggest market.

Like other carmakers' products, Honda's North American models - including the recently launched Accord - have tended to be bigger and more powerful than their predecessors.

But Mr Fukui said: "From this point on I don't know if it's going to last."

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