Will Honda succumb to allure of V-8 engines?

[Northstar]

By Kathy Jackson
Automotive News / August 29, 2005

http://www.autonews.com/article.cms?articleId=54329

As gasoline prices flirted with $3 per gallon, Honda CEO Takeo Fukui surprised reporters in Tokyo this month when he said the company was looking at its first V-8.

A new V-8 while gasoline prices reach record highs? Yes, Honda is finally hedging its bet on fuel-efficient four- and six-cylinder engines.

The company is turning its attention to vehicles it purposely has ceded to the competition: big SUVs and pickups with V-8s.

Honda's aversion to V-8 trucks has cost it some business. But its contrarian tradition of environmentally conscious engineering will make Fukui look like a genius if consumers flock to high-mileage vehicles.

In the meantime, Honda's strategy has limited its U.S. growth.

From 2000 through the first seven months of 2005, Toyota, Lexus and Scion have gained 3.5 points of market share, Nissan and Infiniti have gained 2.0 points, and Honda and Acura have gained 1.3 points.

Toyota and Lexus have sprinted ahead of Honda partly because Honda has not offered full-sized body-on-frame pickups and SUVs, which account for 20.1 percent of the U.S. market.

Other factors have slowed Honda's growth:



Toyota's youthful Scion brand of cars is a hit, while Honda's answer, the Fit, won't come to the United States until next spring.


Toyota sells about 2½ times more hybrids than Honda in the United States, though Honda put a hybrid on the market first.


Consumers are balking at the high price of Honda's first pickup, the Ridgeline, which went on sale in February.


Lack of service capacity has hurt the brand's image, as reflected in customer service studies.


Honda steadfastly refuses to give consumer rebates.

"They're in the middle of a price war. Toyota and Nissan are taking initiatives. If Honda doesn't want to deal, Nissan will," says Raj Sundaram, president of Automotive Lease Guide in Santa Barbara, Calif.

Still, Honda's strategy yields strong profits. Honda Motor Co. posted net income of $4.53 billion in the fiscal year ended March 31. By comparison, General Motors had net income of $3.69 billion in 2004, and Ford Motor Co. reported net income of $3.49 billion in 2004.

And sales of Honda's long-struggling Acura Division were up 9.7 percent for the first seven months of the year, to 124,854 units. Acura is now the No. 4 seller among luxury brands.

Honda has signaled that change is coming. The redesigned Civic, for instance, will have more interesting styling and better performance than the current car. And there's the V-8.

Fukui's V-8 musings encourage dealer Dave Conant of Los Angeles.

"It excites me to think they're reopening the gate" about a V-8, he says. "Our product is pretty much dated, other than the Ridgeline and Odyssey (minivan). But our turn is coming again, first with the new Civic."

Critical new Civic

A redesigned 2006 Civic will hit the market this fall. It's critically important because many young entry-level buyers have flocked to Scion, Mazda and other brands. Chevrolet has improved its small-car offerings, as have Kia and Hyundai. A redesigned Nissan Sentra arrives next summer.

The 2006 Accord will be reskinned, primarily in the rear, at a cost of about $20 million.

John Mendel, senior vice president of automobile operations at American Honda Motor Co. Inc., admits that the "Accord is under fire." But he says the company still can sell 300,000 to 400,000 units annually in the United States without resorting to heavy consumer rebates and eroding resale values.

Honda sold 386,770 Accords in 2004 and 404,192 in 1999.

"That (Accord) segment is hard," Mendel says, "but we have maintained residuals and not spent a lot of money. We think we can move into the future with the same attitude. We've never laid off an employee. We can be flexible at our factories. We're in pretty good shape."

The entry-level Fit, which is made in Japan, will be introduced in the United States and Canada next spring.

Staying true to its roots, Honda plans more environmentally friendly autos. It will add cylinder deactivation to more vehicles.

Says Fukui: "Honda will further expand its product lineup in order to respond to increasing customer demands for vehicles with high fuel efficiency."

Shy of trucks

Honda has aggressively added light trucks in recent years, such as the Element, Ridgeline and Pilot. For the first seven months of this year, light trucks accounted for 45.6 percent of Honda Division's sales, slightly more than Toyota Division's 45.4 percent.

Light trucks accounted for 54.2 percent of sales for the entire U.S. industry.

The company introduced the V-6 powered Ridgeline - its first pickup and its largest vehicle - in the United States in February. The company projects 50,000 Ridgeline sales during the first full year, but only 18,166 have been sold through July. Koichi Kondo, president of American Honda, says the $30,000 price tag - about $10,000 above competitors' vehicles - is hurting Ridgeline sales.

Now CEO Fukui says the lack of a V-8 on vehicles such as the Ridgeline and Acura MDX also is a weakness. "Without such new engines, we can't see more growth," he says.

Honda has said it will equip the redesigned Acura NSX with a V-10 in three to four years. Fukui said a decision on the V-8 is due in about three years. He said the company also will begin building the CR-V sport wagon in North America to help strengthen truck sales in this market. CR-Vs for North America are assembled in England and Japan.

Strengths, weaknesses

Lincoln Merrihew, managing director of the automotive practice for Compete Inc. in Boston, says the good news is that Honda's weaknesses - a lack of V-8s, too few sport wagons and other trucks - can be fixed.

He says its strengths, engineering and reputation, are intact.

"Honda has always gotten away with its historic strengths, but it now needs to augment those strengths to remain competitive in new segments," he says.

Merrihew, who monitors consumer buying habits, says the Civic and Accord are "must-shops" in their segments. This brings a constant stream of shoppers into Honda dealer showrooms, which lowers advertising costs.

For example, Merrihew says Honda spends only about $55 per shopper to lure Civic intenders into showrooms, compared with the industry average of about $200.

"That's a benefit to Honda," he says. "Honda has great luxuries: advertising efficiencies, low incentives and great technology. They now need to apply that to broader segments."

No connection

Mendel, a former Ford executive who came to Honda from Mazda last December, acknowledges that Honda tends to be insular and lacks an emotional connection with many potential customers.

"We don't tend to be open; we're even tight-lipped with our dealers," he says. "I thought at first that was a weakness, but not now. There's a good reason to keep tight-lipped about product."

But he says the company will seek an emotional connection with consumers beginning with the new marketing campaign for the Civic.

"We want to put a little more effort on connecting emotionally," he says.

Says dealer Robb Brown of Toledo, Ohio: "The advertising needs to be more up-to-date, more contemporary." Brown is a member of the Honda's National Dealer Advisory Board.

So maybe Honda is starting to come out of its shell.

Dick Colliver, executive vice president of sales for American Honda Motor Co., once said the only V-8 you'd find in an Acura showroom would be on a vegetable-juice can. Now the company is talking V-8 engines and V-10s.

[Cory Wolfe]

Unless they come in 1/2, 3/4 and 1 ton forms

Going by your logic, I guess the Trailblazer isn't a truck. The Colorado isn't either. :P

[ImpalaPete]

Say what? Nobody better try to tell me that the PT Cruiser and HHR are not "trucks"! Heck, the PT Cruiser and HHR can each tow one yard cart, two empty 13-in TV boxes, and three fatties. ^_^