By BILL VLASIC from http://www.nytimes.com/
Published: August 25, 2008
TORRANCE, Calif. — During the glory days of big pickups and sport utility vehicles, one automaker steadfastly refused to join the party.
Despite the huge profits that its competitors were minting by making larger vehicles, Honda Motor never veered from its mission of building fuel-efficient, environmentally friendly cars like its Accord sedan.
“I remember being at the Tokyo Motor Show in the mid-1990s and talking about the environment,” said Ben Knight, head of engineering at Honda’s North American division. “The reaction was there’s no return on that.”
But in today’s fuel-conscious automotive market, Honda is reaping the rewards for its commitment.
No major automaker in America is doing better than Honda, whose sales are up 3 percent for the first seven months of this year in a market that has fallen 11 percent. By comparison, General Motors is down nearly 18 percent, Ford Motor has dropped 14 percent, and Toyota has slid 7 percent.
While competitors are scrambling to shift their product lineups to build more small vehicles and slash their bloated inventories of trucks, Honda can barely keep up with demand, particularly in the subcompact category.
Sales of its tiny Fit have soared 79 percent so far this year, and interest in the vehicle is so strong that Honda accelerated the introduction of the 2009 model, which will go on sale Tuesday.
The Fit’s four-cylinder engine gets 34 miles per gallon in highway driving, but the quirky little hatchback does not scrimp on creature comforts. The base model — which sells for $15,200, including delivery charges — has a satellite-linked navigation system and safety features like side-curtain airbags.
Honda’s focus on fuel efficiency is paying off on the bottom line as well. The Japanese automaker reported a record profit of 179.61 billion yen ($1.68 billion), during its fiscal first quarter that ended in June, an 8.1 percent jump from the previous year.
By comparison, G.M. and Ford have lost billions this year as the market has moved away from the big vehicles that once generated the bulk of their profits. Detroit is moving radically to downsize its vehicle lineups and, in Ford’s case, to convert assembly plants from making trucks to small cars.
Even Honda’s larger Japanese rival, Toyota, is hustling to adjust to the rapidly changing United States market.
Toyota dedicated its latest American assembly plant in Texas to building full-size pickups. Honda’s newest factory, in southern Indiana, is set to begin production of Civic compact cars this fall.
Honda’s focus on fuel efficiency and the environmental impact of its vehicles dates back to the Clean Air legislation of the 1960s and 1970s. Mr. Knight, the head of Honda engineering in North America, recalled how Honda adopted an internal motto — “Blue skies for our children” — as a guideline for future vehicle development.
“The discussions inside the company have always been consistent,” said Mr. Knight, who joined the company in 1976.
Honda has posted the highest corporate average fuel economy of any automaker for its overall fleet of vehicles over the last 15 years, according to federal statistics.
The fuel economy of its cars is comparable to Toyota, but Honda has never aspired to build a full line of trucks and S.U.V.’s.
Its lineup includes the midsize Ridgeline pickup, as well as lighter weight, car-based crossover vehicles like the CR-V, Element and Pilot.
“Honda is a philosophy-driven company,” said Tetsuo Iwamura, president of Honda North America. “Even when the large S.U.V.’s and trucks were big sellers, they did not fit with our philosophy.”
Honda’s dealers pressed the company in recent years to build a full-size pickup and introduce a V-8 engine, said Dan Bonawitz, head of corporate planning in the United States.
“We kept asking ourselves what value Honda would bring to the customer in that category,” he said. “There was just no benefit for us to get in it.”
Sales of Honda’s crossovers, minivans and pickups have dropped this year along with the overall market. But the surge in sales of its cars has more than made up for the shortfall.
Unlike many other automakers, Honda has been able to capitalize on the switch in demand to cars because of the flexibility of its assembly plants.
At Honda’s plant in East Liberty, Ohio, for example, the assembly line can switch almost seamlessly from Civics to CR-Vs.
When the new plant goes into production in Indiana, Honda’s North American production capacity will increase to 1.4 million vehicles a year to meet the growing demand for its small cars.
“We had a very good May and June with sales of the Civic, but July and August have been terrible because of a shortage of stock,” Mr. Iwamura said. “But by October, the supply situation will be improved a great deal.”
Other automakers are also increasing production of their small cars, but Honda is cashing in on its reputation for the reliability, fuel efficiency and handling of its vehicles.
“Honda’s cars seem to have more personality than Toyota’s,” said Aaron Bragman, an analyst with the research firm Global Insight in Troy, Mich. “Their cars are enjoyable to drive, and not just appliances.”
Meghan Bohnert of Festus, Mo., recently traded in her Toyota Corolla for a Fit because it “stood out” from other cars in the subcompact segment. “People I know think the car is cute and it surprises them with its pep,” said Ms. Bohnert, a 24-year-old analyst for AT&T. “People are also surprised at the amount of interior space.”
Even with the success of its smallest cars, Honda executives concede that the company has some catching up to do with Toyota in hybrid vehicles.
While Honda offers a hybrid version of the Civic, Toyota’s Prius model is the runaway leader in the category.
But Honda recently announced plans to introduce a five-door, hybrid-only model in North America next year to compete with the Prius. Honda is expected to price the vehicle lower than the Prius to attract younger buyers.
Honda is also planning a two-door, sporty hybrid and a hybrid version of the Fit.
At its headquarters here in Torrance, the vehicle that draws the most attention these days is the company’s hydrogen-powered, fuel-cell vehicle dubbed the FCX Clarity.
The company recently began a program to lease the fuel-cell car to a small number of consumers in California. Executives declined to predict when the car will be available for the mass market, but said it represents the next step for a company committed to clean technology.
“We have a saying that we want to make Honda the company that society wants to exist,” Mr. Iwamura said.
Honda
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