U.S. is Promised Land for American Honda

For Honda Motor Co. Ltd., the U.S. is the Promised Land — and it's showing more promise every year.

Since 1984, sales of Honda vehicles in the U.S. have not only exceeded those in Japan each year by a steadily widening margin but today account for 45% of the parent company's total global sales.

“Our sales target this year is 1.35 million units for Honda and Acura, and we'll probably be closer to 1.4 million,” Tom Elliott, executive vice president, American Honda Motor Co. Inc., says in an interview. “Considering that the industry is down a percent or two and we're up 10% or 11%, that's a pretty good swing.

“To me, the major story of this year is how much money is being spent to keep the U.S. market at the level it's at. Thankfully, little of that money is being spent by us. Our incentive costs are actually down compared to last year.”

Elliott says he believes Honda's incentive costs are the lowest in the industry, although Nissan Motor Co. Ltd. has made similar claims.

Light trucks — minivans and SUVs — have been a Honda success sector, with sales more than doubling in the four years ending 2002 to 409,231 units.

“Nine years ago, we sold zero light trucks,” Elliott says. “This year we'll sell more than half a million, about 36% of our total sales. For Honda, light trucks will continue to be the major growth area.”

Example: The boxy, youth-oriented Element, introduced last December, is marketed as a light-duty truck. Sales are expected to reach 70,000 to 72,000 units in 2003, well ahead of the 50,000 originally projected.

“The Element appeals to a broad market — old as well as young,” Elliott says. “Only about 35% of buyers are under age 35.” He is especially pleased that half of Element buyers have never owned a Honda before.

Of more immediate interest to American Honda is the strong move upmarket among U.S. buyers.

“If you look at the sales of luxury and near-luxury passenger cars and SUVs, they are among the highest in percentage growth. There's going to be more growth, and we hope to participate,” Elliott says, despite disappointing Acura sales, down around 2% in the first 10 months of 2003.

The new Acura TSX, introduced last spring, has been well received and is expected to exceed the original target of 15,000 sales in 2003. However, this is not enough to compensate for the overall decline in Acura sales, blamed mainly on 2003 being the last year for the aging TL model.

“We introduced the new TL in October and expect sales to increase dramatically,” says Elliott. “We should finish this year with all-time record Acura sales over 180,000 and an all-time record for Honda as well.”

With five automotive assembly plants in the U.S., Canada and Mexico, American Honda now produces in North America about 80% of all the vehicles it sells here.

By March 2004, when the $144 million second assembly line is completed at the Lincoln, AL, plant, Honda will have more capacity in North America — 1.4 million units — than in Japan (1.2 million), and the company's investment in North America will total $7.1 billion.

Says Elliott: “Overcapacity is only a problem for those who have it. We don't have any.”

He foresees some controversy but no “politically correct limit” on the rising market share in the U.S. of foreign auto makers.

“Most of the import nameplate companies are now building more of their products here than they import,” Elliott says. “As we and others grow our business in areas traditionally dominated by the Big Three, such as the truck market, it will become a little bit contentious.

“But the Big Three don't have a leg to stand on when we are designing, engineering, manufacturing and selling cars here. As far as I'm concerned, ours are American products.”

No major expansion is planned beyond the present 1,006 Honda dealers and 262 Acura dealers in the U.S.

Meanwhile, Honda's interest in hybrids has not waned. Two vehicles with gasoline-electric powertrains are in production, and this year the auto maker expects to sell about 24,000 Civic Hybrids and 4,000 to 5,000 Insights in the U.S.

For Honda, nothing can rival North America in importance. According to a J.P. Morgan Asia survey, the region generates 94% of the company's total profits.