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The face of Honda in India, the City, has been a perennial target for aspiring carmakers in India for well over a decade. It again finds itself attacked by not one or two but four major competitors, only this time around it seems it will give way and Honda’s last bastion will fall. Even then, City ruled the market like few others and there may not be an encore ever.No other segment in India has been as dominated as the mid size sedan category, largely seen as the first step in luxury cars, by the Honda City. The car that was originally planned by the Japanese carmaker taking into consideration the preference of the South Asian markets for cars smaller than the Civic, the City’s clout and success in India has been unrivalled.

In its over 10 year presence in India, the car has very rarely been threatened by competition. Infact not untill the Swift Dzire, Maruti’s successful experiment to turn a successful compact car into a sedan, came about in 2008, City was the best selling sedan in the country. That despite the fact that the car scored quite low on value for money, a most critical aspect of the stingy Indian consumer psyche.  See chart

The Aspirational Car

What worked for it was world class quality, safety, reliability, efficiency and fuel economy. What also worked was something that is truly an anathema in India, the car’s high price. Honda often adopts this strategy as a deliberate measure to differentiate its products. All of its cars — the Civic, CR-V, Accord and Jazz are priced well beyond others in competition.

What most analysts and experts would have said in 1998 a hara-kiri (suicide), actually turned up to be a blessing in disguise. Not everybody could afford a City, so not everybody bought it but those who did were seen as ones who have arrived in life.

Initially lapped up by the fast moving Punjabi and Gujrati community, it soon gave the growing middle class a direct way to reward themselves and announce to the world that they have arrived. People bought the City even when they would have been satisfied with a Hyundai Accent or Opel Astra. Others attacked it with freebies and discounts but Honda never fell into the trap.

Very frequently the gap between the price tag of a City and its competitors would widen but that would have little impact on the gap between their sales. By not discounting, Honda gave out the clear message that it need not sell the car, because it sold on its own. It also helped improve and sustain the resale value of the car, which later became one of its biggest USP’s.

Indifferent to competition

For the best part of its life cycle, the City has been a loner at the top of the mid size sedan segment, selling more than all others put together. Few cars have dominated their segments in similar fashion. Putting aside the silent era of Amby’s and Premier Padmini’s, Maruti 800 ruled at the top of the small car segment for close to two decades. But for the better part of that, 800 never had a credible competitor and till the Hyundai Santro came about nobody tried to take it head on.

The current bestseller Alto is another example of dominance personified but though it looks strong at the moment, it has been at the top for only 6 years now and it is very plausible somebody may beat it in the next half a decade. And here again, except for the Tata Nano, nobody has dared to take on the Alto head on atleast from the price point of view, the most determining factor in the small car segments.

Right from the start City has seen many attacks on its citadel. Initially in the late 90’s it was the troika of Ford Escort, Opel Astra and Mitsubishi Lancer where only the latter gave it some iota of scare. As the Ford and Opel died and Lancer became insipid, City had a relatively easy run for the first half of last decade. Ever since then however there have been a series of attacks from the likes of Ford Fiesta, Hyundai Verna, Maruti SX4, Fiat Linea and Chevrolet Aveo.

The diesel dilemma

Honda’s lack of diesel engines is proving to be the achilles’ heel of the City and is being exploited to the hilt by rivals. Competition in the segment has become intense like never before and in the past City has left so little room for others that every new car creates its space at its cost.

The main challenger is the Volkswagen Vento, which ever since its launch in the later half of last year, has slowly started making inroads. The Volkswagen brand which carries with it as much credibility if not more as that of a Honda, novelty, great quality and stylish looks and most importantly terrific diesel engine is helping Vento’s cause.

Diesel itself has become hugely more attractive than petrol. Due to government’s decision last year to free petrol prices while keeping subsidies on diesel intact, the latter on an average Rs 20 per litre cheaper. The incentive to buy diesel has more than doubled in 10 years making it easier for buyers to make up for the roughly Rs 60,000 higher cost of a diesel variant (over petrol). Add to that the higher mileage diesel provides and the massive technological advancement diesel engines have seen over their petrol counterparts and you have a no brainer. Not surprisingly, after Europe, India has fallen in love with diesel cars.

Others have also sensed the opportunity and joined in the mayhem. The Maruti SX4 that burnt its hands before with its petrol variant three years ago, is back with a Fiat engineered diesel engine hoping to seek revenge. So are the Hyundai Verna and Ford Fiesta who believe they will have a better second outing.

Honda still does not have an answer to these cars and by the time it will (by way of an appropriate diesel engine), it may be too little too late. Any other company would have slashed prices and wooed customers but Honda would be loathe to do that. But while these cars are chipping away at City’s only weakness, there is also an admission that it cant be beaten in its petrol avatar.

Consider this. City is now the only car in the segment not to have a diesel variant but still it managed a segment topping 33% marketshare in 2010-11. That number however shoots to almot 57% when we look at only petrol cars, as everybody else sells more diesel cars than petrol. The split is nearly 70:30 in favour of diesel with the percentage going beyond 80% in cases like the Fiat Linea. Overall, Honda is not able to compete at all in 40% of the market. Ominously for them that market is also growing and moving away from the City.

It is not that City never came face to face to the diesel equation before. In the late 90s Mitsubishi launched a diesel Lancer that for sometime was the toast of Motown. But the high price tag, and relative lack of attractiveness then of diesel as a cheaper fuel coupled with Mitrubishi’s own failings, meant City was not earnestly pushed.

This time though, the push has come to a shove.

Evergreen Benchmark
At the launch of the new Verna on Wednesday, Hyundai said the car would become the benchmark in the segment. But any amount of engineering marvel, technological wizadry or marketing gimmick howsoever potent is unlikely to displace City as the benchmark anytime soon. Already in the last six months, Vento and SX4 have closed the gap on the car to the extent that VW has displaced Honda from the perch in the last two months.

Honda’s problems with component shortages in the aftermath of the March 11 earthquake and tsunami means there will be fewer City’s produced and sold in the next three months allowing others to fill in even without a fight. Suffice to say, the dominance of the car and maybe its best days are behind it now.

But even as the City fades, the industry would know its not a victory of one car over the other but diesel over petrol that led to the fall of Honda’s last citadel.

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