Staying SmallPays Off

Honda Motor Co. Ltd. is at the top of its game, and anyone seeking proof of that need only observe the auto maker's latest achievements.

While other car makers are struggling to keep afloat in a trying global environment, Honda on Nov. 14 began production at its newest manufacturing plant in Lincoln, AL, which will build the Odyssey minivan, a full six months ahead of schedule.

At the plant inauguration a mere three weeks later, Honda announced plans to increase capacity by 25%, from the original 120,000 units to 150,000 units. That will hike investment in the plant to $580 million from $440 million and require hiring 800 more workers than originally planned once the plant hits full stride about a year from now.

Its motivation for both the early start date and the output increase: lack of product. Honda, which has been running overtime at its North American plants, just couldn't build Odysseys and Acura MD-X luxury SUVs fast enough at its Alliston, Ont., facility.

“We were not comfortable making the customers wait so long,” says Honda President Hiroyuki Yoshino.

Such a move is emblematic of the good times Honda has been enjoying in the U.S. and at home. Strong sales in North America has meant Honda has felt no need to jump on the 0% financing bandwagon. Instead the auto maker, which claims the lowest incentives per vehicle, has not offered any new financing since Sept. 11, when many car companies followed General Motors Corp.'s lead into the low-interest financing game to spur sales. Honda officials say they would run out of cars if they were to follow suit.

Accord sales have proven to be a particularly satisfying feather in Honda's cap, which in 2001 managed to cruise by the Toyota Camry, unseating the popular midsize sedan from its 4-year reign as best-selling passenger car in the country. What makes this particularly notable is that Camry got a complete overhaul for '02, whereas the Accord revamp is a year away. In the past few months, the older model Accord and brand-new Camry have been selling at the same pace.

In Japan, where the financial picture is even bleaker than here, auto makers have resigned themselves to tough times. While sales from Nissan Motor Co. Ltd., Mazda Motor Corp., Mitsubishi Motors Corp., Fuji Heavy Industries Ltd. and Isuzu Motors Ltd. all are down year-to-date through October versus year-prior, and while auto making giant Toyota Motor Corp. sales are flat, Honda — whose home market long has been considered an Achilles' heel — is up. Way up — 27% on year, spurring market share growth of 3.5 points.

Honda long has been criticized for being too reliant on North America. Though sales are stronger in Japan, it still hardly could be considered a global player. Honda has little to no presence in South American markets and is seeing waning sales and a 1% market share in Europe. The auto maker is shipping units of its CR-V and Civic Si from its Swindon, U.K., plant to the U.S. and Japan to help keep its plant afloat.

Still, Honda is financially sound as well, with some analysts predicting the auto maker to be debt-free within the year.

The secret to Honda's success is manifold, Yoshino says. Among reasons cited are fuel economy, a reputation for reliability and high resale values. “Maybe, just maybe, Honda is observing more closely the market and its customers,” he says.

Honda has set itself apart from the pack before, most notably when Yoshino made what amounted to a declaration of independence at a management conference in Traverse City two years ago. When Yoshino publicly eschewed the need to grow through equity alliance and declared Honda's eternal independence, he was just one of several auto executives disavowing the trend of survival through merger and acquisition. Unlike some others, Yoshino not only was believed but kept his promise.

“I still think what I said back then was correct,” Yoshino tells Ward's. “I haven't changed my mind.”

Yoshino uses GM as his example. “They're the biggest player. Are they prospering? The answer is a clear no. Honda is a smaller player. Are they prospering? The answer is a clear yes,” he says, adding with a chuckle, “Who says being big is beautiful?”

Besides, reminds Yoshino, small is relative. Honda has global sales targets of 13 million this year — including its sales of motorcycles and outboard motors. In two years' time, that figure will be raised to 16 million.

Honda officials are not viewing the economic climate through rose-colored glasses. Officials say the auto maker has established a 3-step contingency plan in case the market is more painful than projected. The first step would be increasing marketing spending, followed by cutting back on production overtime. Only if those steps didn't spur sales would Honda add marketing incentives, officials say.

While the auto maker acknowledges that there are risks in the first quarter of the fiscal year (April-June 2002), it also forecasts a record-setting 2002 — expected to top record-setting sales for 2001 of an estimated 1.35 million units.

Additional capacity provided by the Alabama plant will allow for increased sales of the Odyssey and Acura MD-X. It also makes room in Alliston for the Honda Pilot SUV, a 3-bench utility vehicle slated for the same platform as the MD-X. Sales of the Pilot are set to begin in the summer. The all-new Accord will follow.

Other new products, such as the second-generation CR-V cross-utility vehicle and the Acura RSX, which see their first full year in 2002, also should keep Honda buoyant despite prevailing economic winds.