Even for Honda, 2005 a Rough Year

For American Honda Motor Co. Inc., 2006 will mark a return to its roots.

Next spring the auto maker will flash back to the 1970s, returning to the subcompact market with the Fit, a European-market B-car tweaked for American tastes. Honda helped pioneer the segment in the U.S. with the Civic in 1973.

By contrast, this year Honda launched its largest vehicle yet, the Ridgeline compact pickup truck. Since its March launch Honda has had to defend its first-ever pickup due to slower-than-expected sales.

Deliveries improved later in the year, however, and at 30,761 through October, it appears Honda will hit the 35,000 to 40,000 sales it forecast in January for 2005.

While Honda and Acura brand sales maintain momentum in the U.S. — up 5.4% through October to 1.2 million units — a slow start for the Ridgeline and rare monthly sales dips early this year for the Accord and Civic emerged as uncharacteristic bumps in the road.

For the first three month of the year, sales of domestically built Civics fell 21.6%, while Accord dipped 1.1%, according to Ward's data.

“I can't remember when it wasn't really a rough year,” John Mendel, senior vice president-automobile operations, says of 2005.

Mendel, a self-professed “worrier,” earlier this year replaced long-time American Honda Executive Vice President Tom Elliott, who retired.

“I believe it's constantly good to be paranoid,” Mendel says. “If I'm not worried about Toyota (Motor Corp.) or the Koreans, I'm worried about the Chinese. I think that sets up a pretty good framework for how you need to operate.”

And he worries about Detroit.

Even if Honda's overall sales are managing to deflect any downward pull from the overall industry, Mendel says he remains concerned about ongoing struggles for the Big Three, specifically General Motors Corp. and Ford Motor Co.

“I'd rather see GM healthy. I'd rather see Ford healthy,” says Mendel, himself a former Ford executive. “I think it's hard on the industry when you've got competitors that are in crisis. It's not good for our business. It's not good for their business.”

Mendel began his automotive career with Ford in 1976, holding positions mostly in sales and marketing. He last was at Mazda North American Operations, where he held the position of executive vice president and chief operating officer.

Before his arrival at American Honda, Mendel says he had “a good general high view of what Honda was about,” saying all of his previous employers benchmarked the auto maker's manufacturing, product development and sales policies.

“What I didn't know was the philosophy that drove those practices, and I've spent the last year getting a much better understanding of the heart and soul that drives (this company),” he says. “And it's exceeded my wildest expectations.”

Mendel cites Honda's “quiet leadership. You never see them on a podium declaring next year's sales successes in advance, or how great they are at this, or how great they are at that.”

But he says the auto maker needs to be more “upfront” in touting some of its products and technologies. That does not mean Honda will become forceful in marketing. “I don't know if you'll ever see Honda be aggressive,” he says.

Mendel cites a recent study identifying GM as the leader in hydrogen powertrain technology.

“We're still the only manufacturer that's actually delivered a hydrogen vehicle (an FCX) to a customer,” Mendel says. In June, Honda leased its first FCX fuel-cell vehicle to Jon and Sandy Spallino of Redondo Beach, CA, for a 2-year period.

“And they're (the Spallinos) running around Southern California with it,” Mendel says. “It's not a city (testing program).”

Honda wants to change its perception in the U.S. “Even though you try to take a position of quiet leadership, there are those times when you need to come out and help that along a little bit,” Mendel says. “So I think we can probably be a little bit more upfront.”

In addition to the Fit, targeted at 50,000-60,000 units annually, a revamped CR-V cross/utility vehicle will go head-to-head with the third-generation Toyota RAV4, and an all-new Acura RD-X small CUV built off the CR-V platform will enter the market.

Mendel confirms sometime in the near future Honda finally will debut an Acura hybrid-electric vehicle that will improve fuel economy while upholding the Acura brand image.

Given the recent inflated fuel prices in the U.S., thanks in part to a series of hurricanes, Mendel says Honda currently is “in a pretty good position” as the company with the highest corporate average fuel economy rating in the U.S.

In 2004, Honda cars achieved an average 33 miles per gallon (7.1L/100 km), while its trucks (SUVs and minivans) rated an average 24.6 mpg (9.5L/100 km), for a fleet average of 29.1 mpg (8L/100 km). Toyota ranked second with a fleet average of 26.7 mpg (8.8L/100 km), while Nissan Motor Co. Ltd. and General Motors tied for third, with a fleet average of 24.2 mpg (9.7L/100 km).

Honda also will play up its safety record. The auto maker claims more 5-star crash-safety ratings than any other OEM in the U.S. “So those two things — fuel economy and safety — put us in a pretty good competitive light when people start looking beyond employee purchase plans or rebates or those kind of things.”

Mendel says he does not believe high gas prices will force the industry to “shift wildly from 55% trucks to 20% trucks, but I think it will start to (have an) effect.”

He hopes prices at the pump will cause Americans to rethink whether they really need a large vehicle.

“You know high fuel prices have driven the mix (of vehicles sold) in the rest of the world,” he says. “I think over the long term that will start to help people rationalize a little bit more their vehicle purchase selection. We've seen in the last couple months it's starting to affect consumers' perceptions of what they really need vs. what they want.”

Honda is considering diesels for North America, but no decision has been made. The U.S. market “is one of the only places in the world where diesel (fuel) is actually more expensive than gasoline,” he says.

Mendel cites the lack of low-sulfur fuel and the additional cost of a diesel engine as other barriers. “We've got to see where the economics for the consumer (are),” he says of Honda's U.S. diesel strategy.

“Traditionally the hardware is more expensive,” he says of diesels. “So you're going to pay more for a diesel engine. Will the consumer step up for that for two or three more miles per gallon fuel economy, at a higher fuel price? I don't know.”