"Things look much more upbeat in India today"

Spiralling fuel prices is terrible news for the global automotive industry. But if you are Takeo Fukui, President and CEO, Honda Motor Co., you can afford to worry a little less about it. After all, Honda Motor's calling card is its fuel-efficient engines. So, even as the Detroit giants, General Motors and Ford Motor, find their market shares slipping as buyers shift away from fuel-guzzling light trucks, Honda, besides Toyota and others, is gaining ground. And Fukui, 61, knows just how important fuel-efficient engines have been at Honda. A veteran engineer, Fukui was part of the team that in the early 70s developed Honda's breakthrough CVCC (compound vortex controlled combustion) engine that allowed the then-fledgling Honda to meet America's strict emission norms and break into the US auto market. Over the years, Fukui has done various tours of duty at Honda, including stints with Honda Racing Corporation and Honda of America Manufacturing. Recently in India to unveil Honda's new car, the Civic, Fukui seemed upbeat about the company's businesses in India. Taking questions in English, but answering in Japanese, Fukui, on his fifth visit in 15 years, spoke to BT's R. Sridharan on Honda in India and elsewhere. Excerpts:

You have announced plans of investing Rs 3,000 crore in India over the next 10 years. That is almost as much as what you have invested in the country over the last 20 years. Obviously, you are very bullish on India.

Although Honda has been in India for more than 20 years, there has been a sudden growth over the last five years compared to the previous 15. So, generally, things look much more upbeat in India today.

How will this investment of Rs 3,000 crore get split between the car business and the motorcycle business?

The figure of Rs 3,000 crore is as of now an idea, based on our experience over the last 20 years that we now have to work at twice the pace. However, we haven't worked out the minute details. So, I can't tell you how this will be split between cars and two-wheelers. But whether it is cars or two-wheelers, it is evident that our current capacities will start falling short. Therefore, step by step, we have to keep investing in increasing those capacities.

What would you say are Honda's key learnings in India over the last two decades? Is there something that still frustrates you about the Indian market?

Our major, long experience here has been doing the motorcycle business at Hero Honda, and based on that, we were able to understand the differences between the Indian society and the Japanese society. During that time, we've had some difficulties, difficulties in managing a joint venture. For example, wrapping up the Kinetic Honda joint venture. Therefore, if we have to do business in India, which is different from, say, Japan, having a joint venture with a local partner who understands the nitty-gritty is definitely a plus.

However, there would be some amount of frustrations also. Currently, we are doing extremely well, with good relationship with all our joint venture partners. However, as you would know, we also have had an experience where it did not go very well. Therefore, in motorcycles, we plan to go ahead with a nicely managed joint venture for a long time. And to be able to do that, one of the strategies is to set up a fully-owned subsidiary. To explain further, the Indian market, as far as two-wheelers are concerned, is so big that possibly two companies are required to service it effectively.

But what is the future of your relationship with the Munjals? I know that you have renewed your JV agreement with them until 2014. But do you see the relationship extending into the third generation of the Munjals?

As of now, we are thinking exactly along those lines.

Why did Honda set up a separate two-wheeler company instead of expanding capacity at the joint venture company?

As far as JVs are concerned, while overall relationship may be good, there are times when, or some issues where, there may not be a common understanding or consensus. Therefore, one of the ways of doing that is to have a company that acts as a healthy competition. If there is a healthy competition between the two (Hero Honda and Honda Motorcycle and Scooter India), then each company is going to move in the right direction. I think the key point here is the customer, and anything that does not satisfy the customer is something we would not like to do. And one pitfall or downside here is when you become very big, there are chances that you start overlooking the customer. Therefore, even though it is a 100 per cent (Honda) company, it will work well is a confidence we do not have as of now. Therefore, the partnership is required.

What sort of a value does your Indian partner in the car business bring, given that Honda owns more than 99 per cent of the company?

To start with, it will become 5 per cent as was explained yesterday.

That's still a token ownership.

The partner brings value in the sense of, for example, labour issues or communication or coordination at various levels of the society. These are areas where they definitely bring value to the company.

Global automotive industry watchers say that Honda of late has become very aggressive. Is it because you sense an opportunity in the wake of soaring oil prices?

What you are saying may be correct to some extent. However, as far as the worldwide automobile industry is concerned, and that includes Honda, higher gasoline prices are a negative factor.

"What we constantly keep watching IS our customers, and not our competitors"

But the Japanese carmakers are growing. It's the Big Three (General Motors, Ford Motor Co., and DaimlerChrysler) that is losing market share. If you look at the June results, Ford and General Motors have taken big hits because they are essentially fuel-guzzling 'light truck' companies. Toyota has made major gains and even Honda has managed to grow a little bit, although not as much as Toyota.

This comparison is often made between the Big Three on the one side and Honda and Toyota on the other side. However, (the reason for market share gains) is not just the gasoline prices. What it includes is possibly the fact that customers appreciate the efforts that the companies (Honda and Toyota) are putting in on a variety of fronts, including fuel efficiency and various other technologies going into a car. Fuel efficiency is one part, safety is another, and resale value yet another. For example, one of the things we don't do is sell cars to car rental companies so that the customer gets the benefit of a higher resale value (Editor's note: Since car rental companies tend to turn over their fleet faster, the prices of their used cars fall faster). Competition in the market is getting tougher and tougher and, therefore, these small differentiations will become more and more evident to the customers.

There has been a lot of talk of India becoming some sort of a hub for small car exports. Do you think the potential exists? I know that you have announced plans of a small car, but will you manufacture here with an eye on exports?

As far as our thought process is concerned, we produce cars for the local market. There may be some amount of export, say, 10 per cent of the total production, but we do not set up a plant in a country with the main idea of exporting. That is the Honda thought process.

When do you expect to launch a small car in India?

I can't answer that question. Actually, I do not even know because that is 100 per cent being handled by Mr (Masahiro) Takedagawa (Honda's India head).

How much longer do you think India will be a small car market? The trend is already changing; people are going for slightly bigger cars like City or Corolla.

Till the time cars like City or Civic don't become the mainstay.

How long will this evolution take?

It would be hard for me to give you a time frame.

"Till the time cars like the city don't become the mainstay, India may continue to be a small car market"

How does Honda see the ancillary industry compared to what it was when you first came 20 years ago? Is the quality much better today?

If we compare the industry to what it was even 10 years ago, then I would say that things have improved so much that it is completely a different generation, a different era. Possibly this is because of the policies adopted by the Indian government, starting in the 90s that is now paying off.

I also believe that you are going to set up a second plant for cars. Will it be for small cars?

If we talk about the current plant, it started off with an annual capacity for 30,000 cars, now does 50,000 and may go up to a maximum of 100,000. However, from the point view of car production, one would like to have at least 200,000 in one plant; a desirable figure would be 400,000. And once you have volumes of 400,000, that is the scale at which we would be able to produce a car that is competitive by international standards. We'll only be 150,000 in another five years, so obviously we can't think of 400,000 as of now. But before that we need to first think and actualise the strategy for the next five years.

Toyota and Honda have been traditional rivals globally and now in India.

Competitors, not rivals...(laughs)

OK. Toyota has openly said that it wants a 10 per cent share of the Indian car market. What is Honda's strategy going to be vis-à-vis Toyota?

In the car industry, there are many competitors, but as far as we are concerned, what we constantly keep watching are not our competitors, but our customers. Therefore, we don't need to be very concerned about whatever our competitors are doing. But what is very important is how we are able to address the needs and expectations of our customers.

Do you expect the GM-Nissan alliance to go through. What is your reaction to this proposed deal?

I have also heard this news only from newspapers and media and not directly from the GM Management. Therefore, I am not in a position to make a comment as of now. I am afraid, I have no reaction to offer at present.

Do you see a future for General Motors or has it become a dinosaur?

GM definitely has a future. They have many brands that can do well. GM definitely will stay.

How do you see the future of the global auto industry? Many experts tend to believe that over the next 10 or 15 years, there will only be three or four players, and not 10 or 12 players.

I do not think that the number of players will fall to so few as you are saying, but definitely it will also not go up to many more than what there are currently.

In terms of the car technology itself, what is the direction in which the industry will go? Will hybrids and fuel cells become the mainstay and not the internal combustion engine?

If we talk about 10 years or 20 years down the road, I believe that fuel cell vehicles are something that will definitely become important and big in the market. In between that, various other technologies like diesel or hybrid may also be required.

When you took over as President in 2003, you said your "focus would be on establishing the technology that will drive the 21st Century auto market". What did you mean by that?

I specifically talked about fuel cell vehicles. That was one main point and second, of course, was about safety. We want to design cars that do not have accidents or that cannot be crashed even by rash drivers. So, basically, intelligent cars.

You are passionate about racing. Do you get to hit the tracks yourself or is that something you do not do anymore?

Even now I try and make time for myself to be able to get into the car and drive at our proving grounds or racing circuits. However, I have not had a chance to get into our (this season's latest) F-1 car (laughs).

Is that something you'll do when you get back to Japan?

I would like to do that, but whether the team will agree or not, I don't know (laughs).