HONDA YAMAHA WAR

Anurag Pandey Gaurav Dave Juhi Kumar Kailash Kumar Sahu Namrata Kaushal Vikas Yadav 11 21 23 24 32 65

Demand was growing at 40% per year HONDA was #2 competitor Hondas financial condition was deteriorated because of borrowings

Tohatsu was financially superior

Tohatsu
22% market share PAT-8% of sales Debt-to-Equity ratio= 1.5:1

Honda
20% market share PAT-3.4% of sales Debt-to-Equity ratio= 6:1

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 4% market share LOSS-8% of sales Debt-to-Equity ratio= 7:1 Honda 44% market share PAT-10.3% of sales Debt-to-Equity ratio= 1:1

Japan -Motorcycle Market Trends

Year
50 30

No. of manufacturers

4 1970

1965 1960 1950

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

HONDA vs YAMAHA 65% Yamaha Honda 40%

35%
10%
1970 1981

 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

Investment in R&D
Yamaha Honda 5%

2% 1% 1970 1.1% 1981

Variants
Yamaha Honda 60 63

35
18

1970

1981

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

Honda rapidly deployed its resources back to motorcycles business

Production Share
Yamaha 35% 40% Honda 47% 27%

1982

1984

Domestic Market Share

1982
37% 23%

1984
38%
43%

Yamaha

Honda

Companys auto division supported motorcycle division Increase in promotional funds Enabled dealers to earn 10% higher profits than they could earn by selling Yamaha bikes The innovative element of Hondas counterattack was the use of product variety as a competitive weapon Hondas new model proliferation and price cutting Customers had increased choices

Yamahas sales of motorcycles plummeted by more than 50 percent and the 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 to about one years sales
Yamahas debt to equity ratio increased from less than 3:1 in 1981 to 7:1 in 1983

Ignoring the arrival of a low pressure economy in 1981 Less expenditure on R&D Heavy Loans from banks

Investment more than cash generations

Better promotional strategies Competitive pricing to attract buyers Better incentives to the dealers

Pre and Post sales services

Diversify in other business than motorcycles

Reinvent the manufacturing process that result lower cost, better production quality, greater capability to turn out multiple product versions, and shorter design-to-market cycles Yamaha Motor has to come out with a new manufacturing technology that enables the mass production at lower costs

One of the best markets would be USA. Though the US ITC had increased its 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 generate revenue As far as the balance sheet is concerned, assets can be reduced and in turn cash can be generated

THANK YOU