American Honda Growing in Sales, Assertiveness

No doubt you have heard American Honda Motor Co. Inc. has the highest corporate average fuel economy in the U.S.

The strong advertising message is part of a more assertive corporate stance John Mendel, senior vice-president-automobile operations, promised last year for the auto maker.

Rightly so. With not a single V-8 engine and a product portfolio skewed toward fuel-efficient cars rather than gas-guzzling light trucks, no other producer has been better positioned to take advantage of consumers’ shifting tastes in North America during the past 12 months than Honda.

And Honda indeed has taken advantage. Combined, Honda and Acura brand sales are up 3.9% in the U.S. through October, during a year that has been difficult for the industry in general, with the exception of Toyota Motor Sales U.S.A. Inc.

And, while auto industry news has been dominated by plant closings and the elimination of tens of thousands of jobs, Honda announced plans to build a new $550 million assembly plant near Greensburg, IN, and start production in fall of 2008. Mendel says it is too early to describe what type of vehicle it will build. The auto maker only will say it will be powered by a 4-cyl. produced at Honda’s engine plant in Anna, OH.

The long-planned introduction of the Fit, a European-style B-car built in Japan and tweaked for American tastes, was a hit the minute it arrived in the spring. As gas prices soared, dealers could not keep the subcompact in stock.

The new Civic also is a hit and capacity constrained, so much so that Honda is shifting assembly of its slower-selling Pilot cross/utility vehicle from Ontario to Alabama to make more room for Civic production.

Sales of the new CR-V small CUV are up 80%, Mendel says, adding that he hopes the Fit will attract the tuner crowd like the original Civic did 20 years ago.

The new Acura MDX CUV also is receiving high praise in a climate where bigger utility vehicles are falling out of favor.

That’s not to say Honda hasn’t made a few missteps. Even though it was the first auto maker to offer a hybrid-electric vehicle in the U.S. (the quirky, 2-seat Insight), its environmental credentials have been overshadowed by the Toyota Prius. Rubbing salt in the wound, the Honda Accord Hybrid, a pricey variant of the popular sedan that uses its HEV system to emphasize performance rather than fuel economy, has bombed, leaving observers wondering if it might be killed.

Mendel won’t be pinned down on how committed Honda is to the idea of V-6-powered, performance-oriented HEVs, suggesting the public perception of what an HEV is and should be is still evolving.

He says the Accord Hybrid was conceived before “hybrid” became synonymous with fuel economy, and adds that lower fuel prices actually may give the Accord HEV a boost. He also points out that V-6 HEVs from rival Toyota, such as the Highlander Hybrid and Lexus 400h are not burning up sales charts, either.

Honda also remains little more than a niche player in the shrinking, but still vast, pickup truck market. It offers only the V-6 powered, compact Ridgeline, while Toyota is launching a big, new V8-powered fullsize pickup in February and Nissan North America Inc. has offered a fullsize truck for several years.

There also is some speculation the introduction of the next-generation Honda Accord sedan is behind schedule, but Mendel says that’s not so. However, the new car will not be unveiled at the upcoming North American International Auto Show in January, as some expected.

The biggest question for 2007: With fuel prices apparently subsiding from record highs, and overall North America, sales expected to be flat at best, can Honda continue its sales momentum?

Mendel is circumspect about making specific predictions, but he says Honda is very well positioned to handle what likely will be a volatile, hyper-competitive year.

The rapid increase in gas prices earlier this year caused some people to pull ahead vehicle choices by a few months, so there could be some softness in the market as a result, Mendel acknowledges.

However, he says he thinks “the small car thing” is here to stay. “We’re smarter than we used to be about finite resources like petroleum,” Mendel adds.

As for rumors that Fit sales are slowing along with sliding gas prices, he says dealers still have only about two days worth of inventory of the car and are begging for more, even though it is unlikely the U.S. will get more than a 35,000-unit allocation annually.

Honda was selling 435,000 Fits globally before it added North America to the distribution list, and there is a great deal of regional competition for the vehicles, a spokesman says.

Without saying it directly, Mendel also suggests part of Honda’s more aggressive stance is to get out from under the shadow of mighty Toyota, which has been stealing Honda’s thunder in areas such as advanced powertrains and environmental leadership.

“In-your-face” advertising is not Honda’s style, but the auto maker has become decidedly less modest in the way it touts new powertrain technologies, safety features and introduces some edgy new niche cars.

Honda already is talking about several key new products and technologies that won’t be available until 2009, including an innovative diesel engine and critical exhaust aftertreatment system for cars and a new global HEV that will be below the current Civic Hybrid in price.

The diesel is significant because, unlike other new-generation diesels coming to the U.S., it will not require an expensive, urea-injecting exhaust aftertreatment system to meet tough new emissions rules.

The future new HEV will be very affordable, but Mendel suggests speculation it will be a hybrid version of the Fit subcompact is wrong.

Honda also has pulled ahead plans to offer a “mainstream” hydrogen fuel-cell-powered car in 2008 instead of 2009.

“It’s a real car, not something where a team of engineers is following you around. You can drive it every day, and we’re working on the fueling infrastructure as well, with home energy stations,” Mendel says.

Honda will stick to its game plan and focus on the core issues of “clean, safe and fun,” Mendel says. He points to the limited edition Mugen Si sedan introduced at the recent Specialty Equipment Market Assn. show as an example of the auto maker’s more forceful path, “and a chance to play more with the fun aspect.”

The car is a Civic sedan specially tweaked by legendary Japan-based Honda tuner Mugen.

“It is the first time we’ve ever offered another parts manufacturer’s products on our vehicle with a Honda warranty. It’s a small expression, but a very important one,” Mendel says.

“Some of our advertising speaks to a different crowd,” he adds. “We’re being a little more comfortable and assertive about who we are. That doesn’t say it’s going to be easy, but we have a good start, a good base to build off of in terms of delivering products people want to buy.”

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