The world's largest motorcycle manufacturer considers Ducati purchase
By Mike Hanlon
March 6, 2012
If you've been having trouble comfortably wrapping your brain cells around the concept of what were once proud national symbols of excellence changing countries, such as the Malaysian-owned Lotus, the Chinese-owned Saab and MG or the Indian Jaguar and Range Rover, then please be seated before reading further. It seems that India's Hero MotoCorp, the world's largest manufacturer of both bicycles and motorcycles is considering the purchase of Italy's deeply loved manufacturer of sports motorcycles, Ducati.
To think that a brand that so closely aligns with Italian excellence and pride might become a symbol of India's rise to power is possibly unthinkable to the Ducati faithful, but the cold hard facts are that Ducati is up for sale, with a reported price tag of around a billion dollars, and with its own MotoGP programme, superbike heritage, technology and design, it's the perfect fit for a company like Hero that has 3,000 dealerships and needs a new non-Honda range of motorcycles just a few years from now.
Hero has grown rapidly as India has motorized, and recently ended its 25 year association with Honda Motor Corp. With cash reserves believed to be in the vicinity of US$1,000 million dollars, the company is now in acquisition mode as it seeks to replace Honda's technology with its own.
Most major automotive and motorcycle manufacturers have built their company on the home market initially, and Hero already has built itself a sizeable fortune selling low-priced scooters and motorcycles to the world's second largest country.
Just as automotive manufacturers are lining up for a crack at the burgeoning Chinese automotive market, the opportunity in India may be trailing the Chinese market penetration of the automobile, but the opportunity is even greater.
In 2009, China had a per capita vehicle ownership of 128 per thousand people (0.128). If it had the same per capita car ownership figure as the US currently has, there's be double the number of cars on the planet. Remarkably, China's per capita vehicle ownership levels are the same as America's were in 1923.
India's population will be the largest of any country 30 years from now - 1.5 billion human beings.
India's vehicle ownership ratios are currently the same as America's were in 1912 - when the Model T Ford was top seller.
Between now and when the Indian population can afford to buy cars, they will buy motorcycles. Last year just shy of 10 million motorcycles were sold in India, and Hero MotoCorp is planning to sell that many of its own brand just four years from now.
Hero famously got its start manufacturing bicycles for the home market in 1956, evolving from a family-owned bicycle parts business established in post-ww2 Amritsar. As India's massive population needed transport the company's bicycle manufacturing business grew every year, becoming the largest bicycle manufacturer in the world during the 1980s.
Using the cash generated by the bicycle business, Hero diversified and in 1984, partnered with Honda to create Hero Honda. The company's success has been astounding since.
By 2004, Hero Honda had become the world' largest manufacturer of two-wheelers, driven by its dominant 50% share of the Indian market.
The high standards of the company's manufacturing capability need little validating other than a list of clients for which it manufactures a comprehensive array of high tech parts, from engines to entire vehicles - Toyota, Nissan, General Motors, Rotax, BMW, Bosch and LG.
In 2010, Honda sold its shares in Hero Honda to the Munjal family and has set up in India to produce its own motorcycles independently, while Hero Honda has become Hero MotoCorp and intends to go it alone. The upside of owning its own technology is that it can apply its massive manufacturing scale to supply motorcycles worldwide, and obviously, Ducati's global network provides another opportunity for expansion.
The contract with Honda involves the continued supply of Honda models and technology until 2014 - after that, all Hero's designs and technology will need to be licensed, purchased or developed.
Acquisitions is the route the company has decided to take and it recently entered into a partnership with Erik Buell which might well see Erik one day given the opportunity to design whole motorcycles without needing a legacy powerplant. That's exciting in its own right.
As I write this, I am wondering just what the general reaction of Ducati fans might be. If Ferrari, a company so closely aligned with Ducati that they share race sponsors and even press events, were to be offered for sale to any foreign company, I suspect there might be government intervention.
That's unlikely to happen with Ducati - it's clearly for sale and money talks all languages, so unless an Italian buyer emerges, Hero MotoCorp might well become the proud owner of one of Italy's most visibly successful companies.
It's far too soon for any indications on what Hero might do with the Ducati brand and its technologies but anything is possible. If you have fears that the Ducati name will be discontinued, fear not - there's plenty of life in the company yet, just maybe not in Italy.
Iconic national symbols have been treated well by India in the past, with Range Rover and Jaguar strengthening their positions under Tata, and even the Royal Enfield Bullet is still manufactured and sold in India.
It's also quite ironic that Hero's main local competitor, Bajaj Motors, owns 40% of another iconic national motorcycle manufacturer - Austria's KTM. Bajaj recently opened 34 KTM stores in India and is heavily promoting the Duke 200 sports bike to the growing sports bike market.
One of the strongest possibilities if the Ducati sale goes through to Hero, is that we are almost certain to see small capacity Ducati sports bikes again.