Around the same time the finance minister was reading out his Budget speech, Honda Motors was applying the final touches to its long-term diesel game plan for India, which will culminate in India emerging a global hub for diesel engines for compact cars. With Pranab Mukherjee steering clear of imposing a cess of diesel-engine powered cars in his budgetary proposals, Honda Siel, the Japanese carmaker’s Indian venture, can pursue its plans of creating a diesel engine portfolio, which is non-existent today. The action has already begun at Honda’s R&D centre in Tochigi, where prototypes of diesel engines of 1.4 to 1.5 litres for compact cars are currently being worked on by some of the company’s best engineers from across the globe. “Honda R&D is currently developing a small diesel engine. However, we do not have anything specific to share right now,” Jnaneswar Sen, senior VP, sales & marketing, told ET. Those familiar with the strategy say that the diesel engine won’t be ready in a hurry – not in 2012 for sure – as the development process has only just begun. Once Honda Siel is in a position to power its compact car range – led by the Brio and the Jazz -- in India with diesel engines, it will move to the second phase of its strategy for the affordable fuel – of setting up an engine plant that can cater to the need of global markets. But those aware of the plan stress that Honda will look to hit minimum volumes of 100,000 diesel cars, including exports, before committing to set up the plant. Currently Honda Siel has a factory with an installed capacity of 1 lakh cars (all petrol), which can be stretched to 1.2 lakh units. Globally, Honda’s diesel exposure is limited. It has one engine manufacturing facility in Swindon, UK which in December started producing a new version of the Civic compact model. Recently Honda unveiled a 1.6 litre diesel engine at the Tokyo Motor Show to power the Civic for the European markets. It also has a 2.2 litre diesel engine that powers the Accord and CR-V for the European markets. “While it is technically possible to downgrade both these engines, the low volumes of the Accord and CR-V (in India) do not justify it. Also the engines for the European market have been developed taking into account the low sulphur content in the diesel there, unlike in India,” says Sen. Honda Siel, which has a market share of under 2% despite being in the country for over 15 years, has been overtaken by rivals like Volkswagen who came in much later. The absence of diesel cars in its portfolio has clearly impacted sales even as the differential between petrol and the cheaper fuel widened over the past year. In the first 11 months of fiscal year 2012, sales fell by 22% over the previous year’s corresponding period because of the glaring gap in the portfolio as well as a shortage of components triggered by the previous year’s tsunami in Japan and flash floods in Thailand that followed. A renewed focus on India—and diesel-- is a part of a fresh strategy for Honda, which has been slipping globally. In 2011, US sales fell by 7% over a year ago. To kick-start growth in India, the Japanese auto major has rejigged its top leadership team in the country. It has appointed Hironori Kanayama as president & CEO of Honda Siel Cars India with effect from April, 2012. Kanayama, who was president of Honda Taiwan Motor Company, has been with Honda for over three decades and worked in crucial markets like China, Taiwan and Japan. Kanayama’s key mandate will to get Honda Siel’s diesel strategy right over the medium to long term. “When Honda puts to work its mind, and its best engineers, you can be sure that its diesel engines will be formidable challengers,” says Hormazd Sorabjee, editor Autocar India. The Fuel For Future Growth Honda Siel has a factory with an installed capacity of 1 lakh cars (all petrol), which can be stretched to 1.2 lakh units Absence of diesel cars has impacted sales even as the differential between petrol and the cheaper fuel widened over the past year Honda R&D working on prototypes of diesel engines of 1.4 to 1.5 litres for compact cars Honda Siel looking to power its compact range in India—led by the Brio – with this engine, but it will not come in 2012 Once Honda scales up volumes of diesel cars, it will make India a global hub for these engines GLOBAL EXPOSURE Has one engine manufacturing facility in Swindon, UK Recently unveiled a 1.6-litre diesel engine to power the Civic Also has a 2.2-litre diesel engine that powers the Accord and CR-V for the European markets