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By Irene M. Kunii in Tokyo

In North America, Honda Motor Co. (news - web sites) is tough to beat. Rivals covet its reputation for reliability and great engineering. Its U.S. sales -- although smaller than those of Motown's Big Three -- have grown 60% in the past decade, to 1.25 million vehicles in 2002. And its efficiency is legendary: Honda earned $1,581 on every vehicle sold last year in North America, vs. $701 for General Motors Corp.

But on its home turf, Honda's story is far less compelling. In May, its new-car sales fell to 21% below last year's level, the eighth straight month of declines. After nudging Nissan Motor Co. aside in 2000 to become second only to Toyota Motor Corp. (news - web sites) in Japan car sales, Honda this year slid back to third place. "We're losing to the competition," Koichi Amemiya, Honda's executive vice-president, told reporters recently.

Honda execs concede there's a problem. Its offerings look tired at a time when rivals have been bombarding the market with sleek new models. And Honda has suffered a big hit in its core minivan operations: Toyota, Nissan, and Mitsubishi Motors Corp. (news - web sites) have all launched spiffy new minivans that are luring buyers away from Honda's Odyssey, Stream, and Stepwagon models.

Those ills may have contributed to the surprise retirement of former President Hiroyuki Yoshino, who announced his departure in April. Now, new President Takeo Fukui must revive Japanese sales by successfully executing a plan that includes new models, more salespeople, and more dealerships. Honda kicked off the initiative with the launch of a sedan, the Inspire, on June 19. While the previous Inspire was an adapted version of the Acura TL that Honda sells in the U.S., the new model was designed for the domestic market.

The Inspire isn't expected to generate huge volume. But with a price tag from $23,000 to $30,000, it's likely to deliver margins well above the 3% to 4% Honda makes on most cars it sells in Japan. More important, says Shigehiro Yasuki, chief engineer for the Inspire, is "to attract people who are ready to upgrade from a minivan." The top-end Inspire boasts natty features such as brakes linked to a laser that detects nearby vehicles. When the system senses a collision might happen, it lightly taps the brakes and tugs the driver's seat belt. If it senses a crash is unavoidable, it tightens all the seat belts and slams on the brakes. There's also a camera linked to a computer to help keep the car in its lane.

The Inspire's three-liter engine has plenty of new goodies as well. Although it has six cylinders, it uses only three for idling or highway cruising -- to cut emissions and boost fuel economy. "This is a very appealing car," says auto critic Shunsuke Saito. If the Inspire is a success in Japan, Honda plans to use some of its features in vehicles sold in Europe and the U.S., where it's due to launch a new Acura TL later this year.

Another leg of Honda's home-turf battle plan is a new Odyssey. Japanese sales of the once-stalwart minivan fell to 52,000 units last year, down from a peak of 120,000 in 2000. Although Honda refuses to reveal details, the buzz in the market is that this model won't disappoint. "This is Honda's core product, so it's going into full drive," says Yoshio Watanabe, an analyst at Mizuho Securities Co. Later this year, Honda plans to update its tiny 600cc Life minicar. To keep these new models moving off the lot, Honda plans to add 500 new salespeople and open 90 new dealerships in major cities this year.

Why break a leg to jack up sales in Japan when Honda is expanding its share in the far bigger U.S. market? "The linchpin of Honda's strategy is America," says Christopher Richter, a car analyst at HSBC Securities Japan. "But it can't write off Japan because it provides it with volume and a test bed for innovations."

Indeed, Fukui isn't about to give up on Japan. But rather than going for volume, he'll concentrate on developing products that appeal to consumers. "If we can please the customer, sales will follow," he told reporters. If he's right, maybe Honda can stop living its double life as a paragon in the U.S. and a tail-dragger at home.

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