Honda Yamaha War

8/4/2019 Honda Yamaha War

1/18

Anurag Pandey 11Gaurav Dave 21Juhi Kumar 23

Kailash Kumar Sahu 24Namrata Kaushal 32Vikas Yadav 65

HONDA YAMAHA WAR


2/18

Demand was growing at 40% per year

HONDA was #2 competitor

Hondas financial condition was deteriorated because of borrowings

Tohatsu was financially superior

Tohatsu Honda

22% market share 20% market share

PAT-8% of sales PAT-3.4% of sales

Debt-to-Equity ratio= 1.5:1 Debt-to-Equity ratio= 6:1


3/18

Tohatsu failed

Conservative approach

Grew at slow and controlled rate

Honda fought aggressively Grew at 66% vs. market at 42%

Established winners competitive cycle

Economies of Scale

In 1964 Tohatsu filed bankruptcy

Tohatsu Honda

4% market share 44% market share

LOSS-8% of sales PAT-10.3% of sales

Debt-to-Equity ratio= 7:1 Debt-to-Equity ratio= 1:1


4/18

1950

1960

1965

1970

50

30

8

4

1 2 3 4

Japan -Motorcycle Market Trends

Year No. of manufacturers


5/18

Japanese became more interested in luxury goods Honda deployed strongest resources into automobile All available cash and resources diverted Motorcycle market share went up to 65% at the end of 60s More revenues from automobile than from motorcycle business


6/18

10%

35%

65%

40%

1970 1981

HONDA vs YAMAHA

Yamaha Honda


7/18

In 1960s both companies had operating profit of 7-10% of sales Operating profits went to 3% in early1980s HONDA invested heavily in R&D for its new auto business

1% 1.1%

2%

5%

1970 1981

Investment in R&DYamaha Honda


8/18

18

60

35

63

1970 1981

Variants

Yamaha Honda


9/18

Yamahas sales increased by 20% to 516 billion

Pre-Tax profits reached to 15 billion

Yamaha invested more than their cash generation capacity

Took loans from banks

Debt burden increased drastically

Debt-to-Equity ratio of Yamaha was 3:1 and of Honda was less than 1:1


10/18

Honda rapidly deployed its resources back to motorcycles business

1982 1984

35%27%

40%47%

Production ShareYamaha Honda


11/18

Yamaha Honda

37% 38%

23%

43%

Domestic Market Share

1982 1984


12/18

Companys auto division supported motorcycle division

Increase in promotional funds

Enabled dealers to earn 10% higher profits than they could earn byselling Yamaha bikes

The innovative element ofHondas counterattack was the use ofproductvariety as a competitive weapon

Hondas new model proliferation and price cutting

Customers had increased choices


13/18

Yamahas sales of motorcycles plummeted by more than 50 percent andthe company incurred heavy losses

By early 1983, Yamahas unsold stock of motorcycles in Japan were

estimated to be about half of the industry total of unsold stock

At the then-current Yamaha sales rate, its inventories were equivalent toabout one years sales

Yamahas debt to equity ratio increased from less than 3:1 in 1981 to 7:1in 1983


14/18

Ignoring the arrival of a low pressure economy in 1981

Less expenditure on R&D

Heavy Loans from banks

Investment more than cash generations


15/18

Better promotional strategies

Competitive pricing to attract buyers

Better incentives to the dealers

Pre and Post sales services

Diversify in other business than motorcycles


16/18

Reinvent the manufacturing process that result lower cost, betterproduction quality, greater capability to turn out multiple productversions, and shorter design-to-market cycles

Yamaha Motor has to come out with a new manufacturing technologythat enables the mass production at lower costs


17/18

One of the best markets would be USA. Though the US ITC had increasedits import tariff, but it is more for the heavyweight motorcycles

Then sell the low CC bikes in the foreign markets, e.g., USA

It may reduce the massive unsold stock immediately and generaterevenue

As far as the balance sheet is concerned, assets can be reduced and in

turn cash can be generated


18/18

THANK YOU

Honda Yamaha War

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