Honda Breaks Up With Kinetic Engg

Japanese auto major Honda Motors has decided to pull out of its scooter joint venture with Kinetic Engineering (KEL). The tie-up had set the pace for other two-wheeler foreign ventures when it was formed in the mid-1980s.

Honda will sell its entire 50.92 per cent holding in Kinetic Honda Motors (KHML) to KEL promoters, the Firodias, for Rs 34.74 crore at Rs 45 per share.

The deal ends months of speculation over the fate of the joint venture. The market price of KEL had dipped last month after news of Honda's pull-out leaked out.

KEL, which makes the Kinetic Luna range of mopeds will get full control of KHML after necessary approvals have been obtained. Kinetic Engineering will, however, not be able to use the Honda suffix to the range of scooter models it manufactures.

In a joint statement KEL chairman, Arun Firodia, and Y Kobabashi, director, Honda Motor Company, said "Honda would continue to provide technical support to the project, and the venture would continue to manufacture, market sell and service the current scooter models. For this, Honda would enter into appropriate technical collaboration agreements with the venture." Both Honda and KEL feel the new relationship based on technical collaboration is mutually beneficial. KEL would have a full line up of two wheelers to be sold under its own brand name. Honda would continue its two wheeler business in India through this technical collaboration and its other joint venture company, Hero Honda, the release further said. "Kinetic could effectively reduce the overheads by cutting out duplication of efforts in areas such as IT, training, top management time etc,'' the statement added.

Honda Motors and KEL have been working together as co-promoters since 1985, in KHML, a company manufacturing the ZX and Marvel scooters. Its launch of Kinetic Honda range of ungeared scooters took the market by storm..

The pull-out will affect Kinetic's plans of tackling growing competition in the scooter market. After the initial success, KHML's growth plateaued and it needed fresh ideas to take on both LML and Bajaj.

Over the last three years, LML upstaged KHML by introducing more sleeker and elegant models, which also had new technical features. Bajaj launched an all-out attempt to modernise its models and roped in Japanese design houses to design a new model, which it introduced recently called Legend. It is a four-stroke scooter with an all aluminium engine. Analysts say the success in the scooter market will depend on the speed with which a company announces newer models and the features the product possess. Without Honda's direct involvement, Kinetic will face tough times, they warn.