The slowdown in demand for scooters has affected the bottomline of almost all two-wheeler companies including Kinetic Honda which has failed to increase its market share of 10 per cent.

Meanwhile, its competitors, LML and Bajaj Auto are fighting to increase their market shares by reducing prices and offering cheap finance. Though LML is slowly increasing its market share, Bajaj Auto continues to dominate the scooter segment.

The Honda management apparently feels that if they cannot be number one in scooters, they should exit the premium segment. Hence, the talks with the Firodias for a possible buy-out. The move is a tacit recognition by the Japanese company that its premium-price strategy is not necessarily a sure winner in the Indianconditions.

If the Firodias succeed in regaining majority control through a negotiated purchase of Honda's 51 per cent stake in Kinetic Honda, it will be first instance in post-liberalisation history where an Indian promoter has bought out his foreign collaborator's majority stake. The Firodias currently own 26 per cent of the equity while the rest is with the public.

The Kinetic Honda scrip, which has dropped steeply over the last few months following speculation about the Honda pullout, stabilised around Rs 51-52 this week. It closed on Friday at Rs 52.

In 1993, Honda took majority control of 51 per cent in Kinetic Honda hoping to grow the market better than the Firodias. But over the last five years, Kinetic Honda is woefully lagging behind others mainly due to inaccurate products.

Honda's main problem in India is that its scooters primarily cater to the premium segment of Rs 38,000- Rs 43,000 range while its competitors are offering better economy products at Rs 25,000. Its two models, Kinetic DXand the top end Kinetic Marvel, do not offer enough range to allow the company to expand market share.

Bajaj Auto, which hasn't been making much money on its scooter models, is hoping to remedy its own shortcomings by launching a slew of new models over the next few months. Meanwhile, LML, which has been quicker off its feet with newer technology and models, has gained market share.

While Bajaj has its three-wheelers and "other income" to take care of its bottomline, Kinetic Honda has been losing money. In the first quarter of fiscal 1998, it reported a loss of about Rs 6 crore. Against this backdrop, it is not surprising Honda is mulling a pullout since it can neither provide the range required to grow the scooter market nor give Kinetic Honda the price advantage of a Bajaj. The option of making motorcycles in Kinetic Honda does not exist because of the joint venture with the Munjals in Hero Honda.

The Firodias are probably betting that by buying out Honda they can have a stronger range overall.Taking Kinetic Engineering, the Firodia flagship, and Kinetic Honda together, they will be able to stake out the entire price segment in two-wheelers -- from mopeds, to scooterettes, to motorcycles and upper end two-wheelers like the Kinetic Honda. Motorcycles in the 110cc and 150 cc ranges are being planned with Korean and Taiwanese know-how.