Honda will divest its 26% share in Hero Honda, but continue licensing its products to the massive Indian manufacturer.
Honda will sell its 26% interest in its Indian joint venture Hero Honda. The Japanese manufacturer signed what it’s calling Memorandums of Understanding with Hero, confirming the long-rumored split. The new MOUs outline “a new relationship” between the two entities, but includes a new licensing agreement allowing the Hero group to sell Honda-developed products.
Under the terms of the new agreement, Honda will completely divest its 26% interest. The price netted for its stake in the largest manufacturer in India is not stated in the official Honda press announcement, though previous reports state the figure at $1.3 billion.
Hero Honda is required to change its company name. Honda’s press announcement states “The brand name will gradually be shifted from the current ‘Hero Honda’ to the new original name.” Presumably the new brand will be called Hero Motorcycles, or some derivation of the name – the Hero group having produced two-wheeled transportation in India since the 1950s, decades before the Munjal family (Hero’s founding family) entered its joint venture with Honda in 1984.
One of the causes for speculation regarding Hero Honda’s split would be the technological development of the new Hero company. The new licensing agreement with Honda continues the partnership between the two companies, at least in the short term. The press announcement states that “Honda will also grant new licenses for new products which will be produced and sold under the new brand name.”
Fumihiko Ike, Honda’s Managing Director and Chief Operating Officer for Regional Operations (Asia & Oceania) said of the new arrangement: “We would like to extend our sincere gratitude to our Partners who made possible Hero Honda’s growth to date. Our joint venture agreement will be dissolved, but our positive relationship will continue. And in order to assure service to the customers, Honda will grant the necessary license to enable continued production and sales of current products as well as a license for new products. I would like to take this opportunity to express our sincere gratitude to the Indian government and related authorities, the customers, and all our stakeholders who have supported Hero Honda’s growth to date. Honda wishes for the success of Hero Group. And Honda will continue exerting our efforts for our customers in India and for further development of the Indian market.”
Honda’s relationship with Hero has grown more complex since the 1999 creation of its own subsidiary Honda Motorcycle & Scooter India (HMSI). While Hero Honda remains the largest manufacturer in India (selling 4.32 million units in 2009), HMSI has grown into the fourth-largest manufacturer with annual sales now well over one million.
The Hero Honda divestment, while the largest joint venture split in the Indian motorcycle market, is not the first. TVS and Suzuki split a similar JV partnership in 2001. The Indian group formed TVS Motors, which is currently the third-largest Indian motorcycle manufacturer. Suzuki created its own subsidiary in India, though it is far smaller in size than Honda’s.