As we follow the automotive sales data from month-to-month it has been hard to deny that we are in the most challenging economic condition carmakers have faced in decades. But we were surprised to see one company stand out in the doom and gloom of monthly auto sales figures. That company is Honda, whose results in the last couple months have been consistently better than its domestic and import competition. Its results have been so good, that some industry analysts predict Honda could soon overtake Ford as the second-largest carmaker by U.S. sales behind GM.
So we asked ourselves, "Why are the numbers adding up so sweetly for Honda?" Whether you tend to buy domestic or import vehicles, it is clear to see that there are myriad factors at play within the car world right now, not the least of which are fuel costs and the environmentally friendly movement. So we decided take a look at eight common presumptions about why Honda has had recent success in this down market to see if they can stand up to scrutiny.
TRUTH: Honda's numbers were stronger than its main competitors in July
Relatively speaking, yes. It may seem obvious to point this out, but even though Honda had better sales than its competition, it wasn't all peaches and cream.
Honda posted July total vehicle sales of 138,744, but said it sold 1.6 percent fewer vehicles overall year on year. The Fit sold a record of 12,266, up 78.5 percent. The Civic Hybrid broke its previous July record, set in 2006, with sales up 27.4 percent to 3,440, while the Accord rose 2.8 percent to 41,382. Meanwhile, GM total sales in July fell 27 percent (and the company announced a record $15.5 billion quarterly loss), Ford sales fell 15 percent and Toyota's fell 12 percent.
TRUTH: Honda is less dependent on trucks or SUVs for core profits
Honda's lineup offers one genuine large SUV, the Pilot, and one full-size truck, the Ridgeline. In July, Ford reported a 22 percent slide for domestic-brand pickup trucks, sport-utility vehicles and vans. Toyota's light truck sales tumbled 27 percent. Honda's truck sales fell 28 percent, but the company has minimized its exposure to that sector, which was once the bedrock of U.S. domestic auto sales. "Honda sales are down, but not as much as the industry," said Tom Libby, a senior director of industry analysis at JD Power. "The Civic and Accord have strong images and now that transfers to the Fit. [This is] something that is particularly a result of their product portfolio, they haven't got a reliance on SUVs or light trucks."
MYTH: Honda benefits from a lineup that is significantly cheaper than its rivals
With a weak economy, high gas prices and consumers trying to get out of full-size SUVs and trucks and into more frugal vehicles, low-price reigns supreme. Though some consumers may view them as such, Honda isn't necessarily the winner here.
A quick scan through AOL Autos new car pages reveals the Honda Accord has an MSRP from $20,360-$28,310; the Civic comes in at $14,810-$29,500; and the Fit is at $13,950 to $15,270. A Civic Hybrid will cost you $22,600. Toyota's comparable models include the Camry at MSRP $18,920-$28, 470; the Corolla at $15,250 - $18,760; and the Yaris at $11,550 - $13,925. The Toyota Camry hybrid runs $25,650 - $25,650. So Toyota maintains a distinct price advantage over its competitor, and don't expect any Honda rebates, either: the company has never offered a cash rebate to its U.S. customers.
For an even bigger price difference, look no further than the Hyundai Elantra, whose base MSRP of $13,870 - $16,570 undercuts the Civic by nearly $1,000, or the Nissan Altima with a base MSRP of $18,620 - $28,670, nearly $2,000 less than the Accord.
TRUTH: Honda's brand loyalty is among the highest in the marketplace
It's easier to sell to a consumer that already likes your brand. In the last five years Honda has consistently scored in the Top 4 in JD Powers' brand-retention surveys. "The percentage of Honda owners who trade for another Honda are among the highest of any brand," Libby said. "One [factor] is their vehicles are high quality, reliable, and in general customer satisfaction is high. They retain high resale values, depreciate slowly, and after three years, a Honda is worth more than other brands on the market."
TRUTH: Honda's manufacturing is flexible
By being able to react quickly to market demand for smaller cars, Honda should find it easier to give consumers what they want.
Honda recently announced plans to move Ridgeline pickup production to Alabama, which currently builds the Odyssey and Pilot, and expand Civic production in its Allison, Ontario factory. Additionally, it has a new factory that will open later this year in Indiana, to meet soaring consumer demand for the Civic.
"Our flexible manufacturing system is allowing Honda to shift production to meet consumer demand, which prevents the company from being saddled with unused production capacity," said Chris Martin, a Honda spokesman. "The new small hybrid vehicle launching next year is likely the most significant addition, as we will sell 200,000 worldwide per year with 100,000 units hitting North America."
"The uncertainties in the market have been quite profound in the past few weeks," noted Dick Colliver, executive vice president of sales for American Honda. "We are adjusting our production to meet the rapidly changing needs of buyers and are confident these changes will provide the needed inventory as we move forward."
MYTH: Honda benefits from a weaker dollar
A weaker dollar is never good for an importer, as it means that buying a foreign car becomes more expensive for U.S. consumers. Take note, though, that Honda now exports Honda Pilots to Russia from its Alabama factory. Honda says that this allows them to meet demands in another part of the world when domestic sales are down. It also leaves Honda in a mildly hedged position on imports/exports, where it can benefit somewhat from a weaker dollar.
MYTH: Honda is largely unaffected by market forces
Sometimes, even the best succumb to the vicissitudes of the auto market. Honda recently took a $230 million charge relating to a decline in value of leased vehicles returning to the company. In the company's defense, finance charges like this have become commonplace this year in an industry where the value of off-lease cars has plummeted.
TRUTH: Honda is seen by consumers as a fuel efficient alternative
With fuel efficiency being on the mind of almost every new car shopper these days, Honda is poised to be on the top of consumers minds.
"Honda has developed an image of being a technologically advanced company on the bleeding edge of power trains," JD Power analyst Libby said. "They're seen as environmentally friendly and relatively fuel efficient, and right now that's helping them."
Chris Martin, of Honda, said the company has built its brand around "fuel efficiency, vehicle quality, and strong value" and is receiving positive media coverage over its delivery of the first FCX Clarity hydrogen fuel-cell vehicle to a customer last week. He said Honda is continuing production toward the goal of delivering 200 Clarity's within the next three years. "Honda has stated clearly that the company sees hydrogen fuel cell vehicle technology as the ultimate solution to sustainable clean transportation," Martin noted. "The FCX Clarity is the car of the future, here today."
So there you have it. Factoring in things like being quick to react to changing market demands, having products consumers are looking for here-and-now and leading in areas like brand loyalty, Honda stood slightly higher than others in the current down market. The real test is to see whether this will continue as the automotive space changes even further.
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