Honda Atlas promises a smooth and comfortable ride to its drivers. But its local assembly line hasn been able to provide a trouble free journey to HCAR managers during the past few years.
The companys bottom line went deeper into red in the year ended March 2010 - posting a record loss of Rs852 million, from a loss of Rs402 million incurred the year before.
Poor economic performance during the last two years has created many hurdles for the company - pushing down annual sales to just around 12,000 units in 2009 and 2010, against an annual average of 21,000 units sold during 2005-08.
With production capacity at 50,000 units per annum, such low levels of capacity utilization are makings for a hard landing for the company.
At the same time, the cost of raw materials used in car making has been increasing significantly for the troubled automaker, making it difficult to pass on the increasing costs to its customers. In FY10 alone, HCARs cost of sales per unit increased by 17 percent over last year.
The company is also facing high depreciation costs, stemming mainly from investments made in the past to enhance its production capacity, improvements in indigenization levels and the addition of new models to its product offering.
Aiming to tackle these problems, the firm is banking on in-house cost cutting measures while benefiting from a relatively stable rupee to reduce overhead expenses.
Plans to significantly reduce advertisement expenditures are also being implemented to lower distribution and marketing costs.
These developments, in the midst of stabilising economic indicators, might signal relatively better times ahead for high-end car manufacturers like Honda.
Though, some expect the industry to post nominal growth, others see automobile industry, including HCAR, growing by as much as 20-30 percent in FY11.
"We anticipate HCARs sales to remain around 14,000 to 16,000 units in FY11," Furqan Punjani, analyst at Topline securities told BR Research, adding that improvement in sales will significantly reduce losses, while reduced exposure in short-term borrowing will also somewhat cushion the firms bottom line.
Still, its too early to expect Honda to turn around the corner; not at least until the trade policy is announced.
The Trade Policy 2011 is due to be announced in the first week of July, and there are fears that the government will relax the rules of used car imports.
If the government allows the imports of used cars of up to 5 years old, and increases the existing depreciation rate by 100 basis points, it would essentially cap the room for the industrys growth. And Honda can really afford that.