Honda Motorcycle announces its first-ever VRS amid weak two-wheeler demand

Scheme offered to the 40-plus or those with 10 years in the company

Honda Motorcycle & Scooter India (HMSI), the 100 per cent subsidiary of Japan’s Honda Motor Company, has introduced a voluntary retirement scheme (VRS) for permanent employees as it seeks to “realign its production strategy” and improve the overall efficiency in “these uncertain times”, the company said in an internal circular on Wednesday.

Employees above the age of 40 or those who have completed 10 years of service are eligible for the scheme.

This is the first time in its 20-year history that the maker of Activa scooters and Unicorn motorcycles has launched such a scheme. The move reflects the pain the world’s largest market for scooters and motorcycles has been through during the Covid-19 pandemic.

Two-wheeler sales in India dropped by about 25 per cent year-on-year to 9.6 million units in the first eight months of the current financial year, according to the Society of Indian Automobile Manufacturers (Siam). Even though dispatches to dealers -- counted as sales -- have largely seen an improvement in the past five months, sales to end users have been slow.

The development at HMSI, India’s second-largest two-wheeler manufacturer, comes a fortnight after Honda’s car manufacturing arm, Honda Cars India, announced realigning its production.  

With a combined annual capacity of 6.4 million units, HMSI has production facilities in Manesar (Haryana), Alwar (Rajasthan), Narsapura (Karnataka), and Vithalapur (Gujarat), and employs over 20,000 people across the plants. The VRS is applicable only to the Manesar facility, where it makes the Unicorn, Shine and Activa models.

“HMSI has been reducing production of the Activa at Manesar as it’s also being produced at the three other plants,” said a person privy to the development. Going forward, it plans to shift the production of the Activa from Manesar and deploy it for making some upcoming motorcycle models. The announcement for the same is expected in the coming months, the person said.    

“In order to maintain its existence in this competitive two-wheeler market, it is essential to continue with high efficiency and competitiveness. Therefore, keeping in view all the above reasons, the management has introduced the VRS for all the associates who want to retire voluntarily before their fixed retirement age, so that they can be relieved from the company gracefully,” Naveen Sharma, division head (general affairs), HMSI, said in the circular, a copy of which has been reviewed by Business Standard. The directors of the company are not eligible, he wrote.

The scheme will be effective from January 5 and will remain open till January 23. However, the management at its discretion can change the scheme without prior information or notice and may extend its time period, the letter said. The management will have full authority to decide in this regard.

The formula for the VRS package includes three-month gross salary into the completed year of service, one month’s basic plus variable dearness allowance (VDA) into the remaining year of service — and ex gratia of Rs 22,000 into the completed year of service. The scheme also has an ‘early bird incentive’ of Rs 5 lakh each for the first 400 applicants. If the VRS applications exceed 400, an additional Rs 4 lakh will be paid to all the applicants, the letter said.

The company has also capped the maximum amount for applicants for permanent workmen and junior engineer (JE) and above. For instance, for senior manager or vice-president, the amount is capped at Rs 72 lakh, for manager at Rs 67 lakh, for deputy manager at Rs 48 lakh, and Rs 15 lakh for assistant executive.

Some of the other auto firms that have introduced a VRS this fiscal include Tata Motors, Ashok Leyland, and Toyota Kirloskar Motor.

Retail sales of two-wheelers were weak in December due to the exhaustion of pent-up demand and impact on small businesses, resulting in a build-up of system inventory of 35-40 days. Retail sales of entry-level motorcycles (110-125 cc) are weak and two-wheeler makers are offering discounts to liquidate their inventory, wrote Abhishek Jain, analyst at Dolat Capital in a recent report.

HMSI, which corners more than 50 per cent of the scooter market, has been hit hard as scooters primarily sell in urban India where demand has taken a more severe knocking, said analysts.