Honda Suffers, Pins Hopes on Insight

No Auto Maker is Immune to the economic upheaval that has decimated vehicle sales, but American Honda Motor Co. Inc. managed to make it through October with a modest decline of 3.2%, the industry's smallest.

“I guess our resilience and ability to continue to compete relatively effectively in a difficult industry is pleasing, but I think it's troubling to see what the industry is going through in general,” Executive Vice President John Mendel tells Ward's in an interview. “The general health of the (U.S. auto) industry doesn't bode well for anyone, us included.”

The year started strong for Honda. At the halfway point in June, Japan's No.2 auto maker was seeing monthly sales increases in the U.S. over like-2007. Rival Toyota Motor Sales U.S.A. Inc., with its trucks and SUVs foundering in the marketplace, could not say the same.

Honda's first-half success was attributed to the high-volume Accord and Civic sedans and surging Fit subcompact as U.S. consumer preferences shifted to fuel-efficient cars in response to volatile gasoline prices.

But Honda could not continue to buck the trend. By July, the auto maker had fallen victim to the same forces that had claimed Toyota and the rest of the U.S. auto industry.

Mendel calls models available now “probably the best products the industry has ever seen for consumers, and yet it's one of the most difficult markets between the credit issues, the stock market, the overall financial piece, and the lack of (consumer) confidence. It's a pretty difficult situation.”

When asked for Honda's forecast for this year's seasonally adjusted annual rate of sales, he jokes, “Do you want the 7:00 or the 7:30?” underscoring the ever-changing outlook for the largest new-vehicle market in the world as the year draws to a close.

“We're still officially at 13.2 (million light vehicles),” he says. “That may change based on what November has to offer. It's kind of a jump ball at this point. I'm not sure the predictions are really valid.”

Honda's own 2008 volume expectation, including both Honda and Acura brands, was 1.5 million units, but Mendel says “we'll be a little bit under that now.”

Through October, Honda sold 1.266 million units, Ward's data shows, with Honda-brand deliveries at 1.140 million and Acura sales of 125,936.

Except for the CR-V, sales of all Honda light trucks were down through October. Results were better on the car side, with the Accord, Civic and Fit gaining volume.

Fit deliveries surged 52% through October vs. like-2007 due to high fuel prices during the summer and the introduction of a next-generation model in late August.

“We ran out of (the) Fit this summer,” Mendel says. “We sold out sooner than the new model was coming in.”

The Fit was so hot, some Honda dealers were advising customers not to put their names on a waiting list because the order backlog was already too long.

Now, with gas prices falling to 2005 levels and the initial rush to grab the new Fit dying down, Mendel says Honda's supply was a manageable 12-13 days' as of Nov. 21.

He pegs Fit sales slightly above 80,000 units in 2008 and closer to 90,000 in 2009. But he cautions both numbers hinge on ready availability, considering the car remains a hot commodity overseas.

Honda also launched an all-new Pilot for '08 in early summer. While the timing for a 4,544-lb. (2,061-kg) large CUV wasn't optimal, Mendel says he's pleased Pilot sales, although down, have outpaced competitors in the segment.

Still, the downturn in light trucks prompted Honda to reduce its North American output in 2008, cutting 18,000 units of production from its fourth-quarter plan. Toyota also trimmed its Q4 output but says it will make up the units in first-quarter 2009.

Mendel says Honda considers the 18,000-unit reduction “a single transaction” and isn't sure it will recoup the lost production in another quarter. “If you plan for that, it could be an erroneous assumption, especially given the precarious situation the industry is in today,” he says.

As of late November, Honda assumed a 12.5 million-12.7 million SAAR for 2009, Mendel says.

To take advantage of consumer interest in fuel efficiency, Honda next year will shuffle models around its North American manufacturing plants to boost output of in-demand cars.

Production of the Ridgeline compact pickup will move from Alliston, ON, Canada, to Lincoln, AL, making room for more Civic production in Alliston. Around the same time, Honda will launch Accord production in Lincoln, which up to this point has built only light trucks, including the Odyssey minivan and Pilot.

Although Toyota and Nissan North America Inc. were offering 0% financing on some models in the fall, the ever-conservative Honda has not gone there — yet.

“I don't know that 0% financing does anything to instill confidence or return confidence to the customer, and I think that's what's really lacking. But you can never say never,” Mendel says, reiterating the auto maker's strict policy against fleet sales, “rent-a-cars” and “cash on the hood” — a strategy that has earned Honda vehicles the highest residual value in the U.S.

Instead, he says low-cost leasing might be expanded because it doesn't hurt residual values.

One model Honda hopes will sell without marketing gimmicks is the all-new, next-generation Insight hybrid-electric vehicle.

The Insight was the first HEV for sale in the U.S., arriving in December 1999, but quickly took a backseat to Toyota's more popular Prius. Mendel says the original Insight was never intended to be a high-volume vehicle.

But Honda has high hopes the new model — which debuts April 22, Earth Day — can achieve annual global sales of 200,000 units, with half of those expected in North America.

Unlike the original 2-seater, the new Insight is “a vehicle for everyone,” Mendel says, thanks to its 5-passenger seating, functionality, improved fuel economy and affordability.

“‘Hybrid’ carries with it an image of ‘high cost’ and (the new) Insight will shatter that image,” he says.

A dedicated website for the new car suggests heavy interest, although Mendel won't divulge the number of hand-raisers. Based on consumer clinics, he is confident the volume will be high.

“It's quite distinctive in terms of where it sits and the position it occupies in consumer minds,” he says.

Looking at the Acura luxury brand, Mendel says a new vehicle, believed to be another CUV to join the RDX and MDX in the lineup, “might” be coming in 2009, and that other Acura vehicles “definitely” will arrive in 2010, including the next-generation RL sedan.

The RL likely will get Honda's first V-8 in a production vehicle as Honda Motor Co. Ltd. CEO Takeo Fukui has said such an engine will be offered soon in an Acura application.

When asked if Honda, long a friend of environmental groups, fears any backlash akin to what Toyota experienced in launching its new Tundra fullsize pickup with a 5.7L V-8 in 2007, Mendel says no.

“I think it has to do with the V-8 itself,” he says, adding that a traditional gas-guzzling V-8 in a large pickup is destined to infuriate green groups.

Honda's V-8, he promises, will be “consistent with the Honda philosophy, which is concern for the environment.” Mendel notes BMW AG has built V-8s for years without consumer backlash.

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