Domestics on Honda's Watch List

Honda Motor Co. Ltd. doesn't come across as a company that sweats the competition much, but a top company official says he's counting on the Detroit brands being big players in five years.

General Motors Co. and Ford Motor Co. “probably have the biggest opportunity in terms of growth and resurgence in credibility with consumers,” says American Honda Motor Co. Inc Executive Vice President John Mendel.

“You can talk about current share, but (GM and Ford's) brands have a lot of awareness and equity,” Mendel says. “And I think, given an opportunity, consumers will give them a try.”

A former Ford executive, Mendel says he keeps a close eye on his old employer, which looks to have an edge because it avoided bankruptcy and spurned government loans. He says Honda's research clinics are encountering consumers who say they won't buy a car from an auto maker that has taken government money.

“We have to be careful not to fall into the Ford/GM myopic view of cross-town rivalries with ‘Honda and Toyota,’ or ‘Toyota and anyone else,’” he says of putting Detroit OEMs on his radar screen.

Maintaining Honda's advantage while the competition gets stronger will be no easy feat, he admits.

“While the gaps might be closing, I think we'll continue to try and lead the way in terms of (being the) benchmark for durability, quality, reliability and fuel efficiency,” he says, citing Honda's typically conservative stance of not chasing every new trend.

For instance, it wisely declined to follow Toyota Motor Corp. and Nissan Motor Co. Ltd. into big V-8s and fullsize pickups and SUVs.

Mendel hopes new products coming next year (next-generation Odyssey, refreshed Accord and new hybrid-electric sports car, the CR-Z) outpace the competition and keep Honda dealers busy.

However, he is a realist.

“I think you've got to plan for more of the same with a little bit greater potential for uptick next year,” Mendel says of the U.S. automotive outlook.

He predicts 2009 will finish at 10-10.5 million units. Honda's famous manufacturing flexibility helps it react quickly to market swings, “but I think planning for much more than a 10-10.5-million sales rate next year is a little risky.”

Mendel expects Honda sales will hit 1.14 million units for 2009, with 2%-4% volume growth expected in 2010.

Through October, Honda's sales are down 23.4%, slightly better than the industry average of 25.3%, Ward's data show.

While he doesn't offer many details of the new Odyssey, Mendel says Honda is staying in the minivan segment while others, such as GM and Ford, have exited, because “it's a little tough to walk away” from 100,000-plus annual sales.

Honda sold 135,493 Odysseys in the U.S. last year and this year expects to sell close to 100,000.

“Which, by the way, isn't wildly off the numbers where we finished the year before,” he says of the 2009 goal. “There are a lot of manufacturers that don't sell a nameplate at 100,000 units.”

Mendel doubts the Odyssey will be cannibalized by Honda's newest cross/utility vehicle, the Accord Crosstour. The auto maker launched it in November and expects it to boost brand sales next year.

He sees the Crosstour serving a different market and appealing to post-minivan families who “don't want a third (Odyssey),” he says.

Also on tap in 2010 is Honda's first sports-car hybrid-electric vehicle, the CR-Z. Mendel calls the B-segment-plus car equal parts performance and fuel efficiency.

“It actually pushes the envelope on both fronts a little bit,” he says. “Certainly the car is a blast to drive. It's small, nimble, quick. But it is every inch a hybrid.”

Honda enthusiasts dub the car the spiritual successor to Honda's defunct '80s and '90s CR-X hatchback.

On the Acura side, no new model announcements are planned for 2010, but the recently launched '10 ZDX CUV illustrates Acura's push for better fuel efficiency, Mendel says. The ZDX, and the refreshed '10 MDX, both receive Honda's first 6-speed automatic transmission.

“As you continue to see new Acuras rolled out in the lineup, or full model changes on vehicles going forward, those things will manifest themselves,” Mendel says of fuel-sipping technologies.

Honda, he says, has a goal to be first in fuel economy within each of its segments, including luxury vehicles.

Variable Cylinder Management, the cylinder-deactivation technology only in Honda models up to now, could make its way into the Acura lineup, Mendel says.

“Everybody has this wall in 2015 (to increase fuel economy), so that's going to take (a fuel-saving technology) out of the nice-to-do category and put it in the must-do category for everyone,” Mendel says.

The U.S. corporate average fuel economy mandate requires each auto maker to achieve a fleet average of 35.5 mpg (6.6 L/100 km) by 2016. But the Environmental Protection Agency is considering a stricter standard that incorporates both CAFE and carbon-dioxide emissions.

Under this new plan, Honda passenger cars would be required to achieve 30.8 mpg (7.6 L/100 km) in 2011 and 38.4 mpg (6.1 L/100 km) in 2016. OEM target number differs, based on sales mix.

As part of the strategy to boost fuel economy, Honda is working on a new full-hybrid system for larger vehicles.

Mendel can't say what that development means for the future of Honda's current HEV technology, Integrated Management Assist (IMA).

Near-term, IMA will be used in the CR-Z and also is installed in the Civic Hybrid and Insight HEV, which launched in March.

Honda had high hopes for Insight sales in 2009, but they did not materialize.

“We got a C on one paper (but) we'll come back. It's a long semester,” Mendel told Ward's earlier this year, brushing off sales that fell far short of Honda's initial goal of about 80,000 annually in the U.S. Through October, Honda sold 17,530 Insights.

He blames the car's poor sales performance on a drop in gas prices, strong name recognition of Toyota's rival Prius model, also redesigned for '09, and the way Americans view green activism.

“We'll recycle if it's convenient; we're green if it's convenient,” he explains.

Mendel paints 2009 as mostly terrible with “two months in the middle that felt pretty good,” referring to the sharp rise in vehicle sales spurred by the government's “Cash for Clunkers” program.

“It's kind of amazing what $3 billion in incentives will do to the marketplace,” he says.

Honda “wasn't stockpiling its chestnuts” in 2009, Mendel says, taking out 200,000 units of production from its plan “which got us in a good position for (the prolonged downturn).”

Since the stimulus program ended, Honda has been able to accumulate enough units through overtime to fill depleted inventories, he says.

“And we're in a position where we're actually earning market share rather than buying it.”

Mendel is pleased Honda stuck to its guns and held the line on incentives in 2009 while competitors offered new spiffs.

“In the first quarter — January, February — there wasn't a lot going on in the industry. The ‘Saved by Zero’ thing kind of fell (flat),” he says, referring to Toyota's 0% financing offer.

“We held our position versus everyone else,” Mendel says.