Honda Fuel Strategy

Honda's fuel-efficiency strategy pays off

Christine Tierney / The Detroit News

In recent years, while many automakers were building bigger and brawnier trucks and SUVs, Honda Motor Co. stuck to its core business of making fuel-efficient vehicles. Unlike its leading Japanese rivals, Honda passed on developing a full-size pickup. It didn't offer a powerful V-8 engine for its premium cars and SUVs either, focusing its resources instead on designing better versions of its stalwart Civic compact and tiny Fit.

That strategy is now paying off. This year Honda has clocked the best performance of any major player in the U.S. market. Its sales are up 4.8 percent in a market that contracted 8.4 percent in the first five months of 2008. In May, the Civic became the top-selling vehicle in the United States, displacing the longtime champion, Ford Motor Co.'s F-Series trucks, as consumers traded in gas guzzlers for more frugal models.

"They have an array of products that is in tune with today's economic climate," said Jim Hossack, a consultant at AutoPacific Inc. in Tustin, Calif. "They don't have a Suburban, they don't have a Super Duty, but they have small, fuel-efficient vehicles. They're in good shape."
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Honda could sell even more vehicles in the United States if the Japanese automaker shipped more small cars to its American Honda Motor subsidiary. Fit subcompacts are sold within five days of reaching showrooms, said John Mendel, executive vice president at American Honda. But Honda is also scrambling to meet demand in Japan, where the Fit is the best-selling vehicle. "Sixty percent of the world market is small cars. We compete with the rest of the world for the Fit," Mendel said. It gets 27-28 miles per gallon in the city and 33-34 mpg on the highway.
This past weekend, Jim Kurtz, a software specialist living near Baltimore, struggled to track down a Fit for his daughter.

"I called five dealers, and only one of them had the car," Kurtz said. "The demand is unbelievably high for these vehicles."

This year, Fit sales are up 64 percent, Civic sales are up 20.5 percent, and sales of the Civic hybrid are up 17.5 percent, according to Autodata Corp.

Honda's trucks, however, are not performing as well. The CR-V crossover is popular, but Honda has a tough time moving its boxy Element vehicles. They spend nearly three months on dealer lots, compared with a 56-day average for compact crossovers as a whole, according to J.D. Power and Associates' Power Information Network. Honda's midsize Ridgeline pickup is also a slow seller, and now carries $3,500 in incentives, according to online auto research firm Edmunds.com.

Sales of Honda's premium Acura vehicles have been weak, too, in the last months before the rollout of redesigned models.

But Honda cars are hard to keep in stock. "Particularly in this climate, where gas prices have spiked since mid-April, Honda is top of mind with consumers," said Mark McCready, vice president for market planning and pricing at online retailer Carsdirect.com. "Honda has for years positioned themselves in their marketing as being economical, with good fuel-economy, reliability and best cost of ownership."

Demand for Honda's midsize Accord sedan is strong, as SUV owners migrate to smaller -- but not much smaller -- vehicles. That shift explains why more Accord buyers are opting for V-6 than four-cylinder engines, Mendel said. Accord sales are up 9.4 percent this year, and ahead 38.9 percent in May.

With gas costing $4 a gallon, fuel economy is a top priority for consumers. Allen Chen, a vice president at a Silicon Valley firm, looked at small, fuel-efficient cars and hybrids. With hybrids, "the gas savings, even assuming $6 a gallon gas, didn't work out because of the extra cost of the car, and the cost of the battery replacement down the road," he said. Last weekend, Chen settled on a Civic with a 1.8-liter engine costing $17,865, including tax.

Honda's archrival Toyota Motor Corp. has many fuel-efficient models in its bigger lineup, but Toyota's performance has been hurt by weak demand for some of its larger vehicles, such as the new Tundra pickup. Toyota has slowed production of Tundras at its Indiana and Texas plants, and Nissan Motor Co. is also slashing output of light trucks in North America.

Compared with Toyota and Nissan, Honda has been more cautious in adding production capacity. But that trait is causing Honda to scramble to supply dealers with more cars. It is increasing Civic production at its Alliston plant in Ontario and it is opening a car plant in Indiana this fall.

But McCready says Honda may run short during the summer selling season. "They don't have the volumes or the inventories to do what they did in May for the rest of the summer."

You can reach Christine Tierney at ctierney@detnews.com.

High Tide at Honda

High tide at Honda

Patience pays off for the automaker as it thrives in hard times.
By Alex Taylor III, senior editor

In May, the thrifty Honda Civic became the best-selling vehicle in America.

NEW YORK (Fortune) -- Given what he has been through in the past several weeks, it is not surprising that General Motors chairman and CEO Rick Wagoner enjoys a bit of schadenfreude at the expense of his Asian rivals.

So while taping an interview with CNNMoney.com last week, Wagoner mischievously tossed barbs at Toyota (TM) for the dubious distinction of being the latest automaker to open a pickup truck plant in North America - only to see truck sales squeezed by the twin pincers of an economic downturn and skyrocketing gasoline prices.

Wagoner was more restrained in his comments about Honda (HMC), however. Japan's second-largest car company makes no body-on-frame pickups, nor any V-8 engines to power them, and so is riding out the current market turmoil with extraordinary ease. Wagoner praised Honda for its thoroughness and consistency in focusing on small, highly-efficient cars and engines.
He might have added "prescience." All but alone among the world's automakers, Honda has long behaved as if the world is indeed running out of all kinds of resources, including oil. Its relentless focus on thrift and conservation, which seemed like eccentricities 20 or 30 years ago, today make Honda the leader of the environmental pack.

At a time when Americans are hyper-conscious about gas prices -- and how can they not be with the media pounding home the message every day - that kind of prescience is paying off for Honda in a big way.

So while the Detroit Three plus Toyota were getting hammered on the showroom floor in May, with sales down anywhere from 4.3% for Toyota to 27.5% for General Motors (GM, Fortune 500), Honda posed a stunning 15.6% sales increase. That was enough to vault it ahead of Chrysler for the month and put it in fourth place in North American sales.

Adding injury to insult, the Honda Civic became the best selling vehicle in America - car or truck - and both it and the Honda Accord outsold the once-invincible Ford F-150 pickup trucks.
Rocket science this isn't. They aren't making any more oil so, over time, you had to figure it was going to get more expensive and more scarce. So why weren't other manufacturers able to see the road ahead as well as Honda?

1. They got sidetracked by the easy profits available in big SUVs and pickups. During the 1990s, the last golden age of the American auto industry, the combination of cheap gas and high-profit big vehicles seduced automakers into believing the good times would never end. Then, when the clock started to run down in 2004, the domestics were too hooked on the big money, and too inflexible by virtue of their UAW contracts, to quickly make changes. Toyota and Nissan (NSANY), anxious for their own bite out of the golden apple, got sucked in too, ramping up pickup production at just the wrong time.

2. Honda's tightly-knit corporate culture and long time horizon made it uniquely able to wait for events to move in its direction, rather than chasing fluctuations in the marketplace. While the car-based Ridgeline truck was savaged by critics for not being a "true" pickup, it now looks like smart move in an era of $4 a gallon gasoline.

3. The other automakers became distracted by their own corporate imperatives. Nissan compounded its problems by starting its own passenger car horsepower race. The Detroit Three, at times, seemed to get their jollies by reviving models from 40 years ago -- Mustang, Challenger, Camaro -- because of the short term jolt they got in the marketplace, rather than formulating any kind of long-term strategy for a resource-constrained world. And who can explain GM's infatuation with Hummers long after the brand ceased to resonate in the marketplace?

The way things area going, don't be surprised to see Honda edge ahead of Ford (F, Fortune 500) into third place in the U.S. market (behind GM and Toyota). It won't happen because of any strenuous sales efforts - it will be another case of the world coming to Honda, rather than the other way around.

Record Honda Sales for May

Honda Civic, Fit Break All-time records!

TORRANCE, Calif., June 3, 2008 - American Honda Motor Co., Inc., May sales of 167,997, up 11.3 percent on a daily-selling-rate basis(1), shattered the company's all-time sales record for any month as Civic sales reached 53,299, up 28.3 percent versus last May and surpassing the previous monthly record for any car in the lineup.

New all-time records set in May included (previous record in parentheses):
American Honda total vehicle sales of 167,997 (August 2007:158,342)
American Honda total car sales of 114,796 (August 2002: 95,686)
Honda Division total vehicle sales of 153,104 (August 2007: 141,906)
Honda Division total car sales of 105,548 (August 2003: 84,390)
Honda Civic Sales of 53,299 (May 2007: 39,993)
Honda Civic Hybrid sales of 4,676 (May 2007: 4,520)
Honda Fit sales of 8,205 (March 2008: 6,835)

"The dramatic increase in car sales appears to be one of the most profound shifts in automotive buying patterns in more than a decade," said Dick Colliver, executive vice president of American Honda. "Record sales of the Honda Civic clearly demonstrate an accelerated trend toward fuel efficiency."

Honda Division sales of 153,104 increased 13.9 percent for the month as total car sales reached 105,548, up 30.7 percent. The Honda Civic, with sales of 53,299, set a new monthly sales record for any model in the Honda lineup, surpassing the previous record of 49,098 set in August 2003 by the Accord.

May 2008 Accord sales of 43,728, up 31.9 percent versus last year, set a new May record, surpassing the previous high of 43,589 set in May 2004. The CR-V set a new May mark of 19,959, exceeding the previous record of 19,513 set in 2007. Honda Division reported truck sales of 47,556, a decrease of 11.4 percent. Year-to-date Honda Division sales are up 5.4 percent to 590,361.