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Honda: Consistency helps amid turmoil

When consumers hit the U.S. auto industry two months ago by quickly shunning trucks and going for gas mileage, the biggest beneficiary ended up being Honda Motor Co.

The No. 2 Japanese automaker, with the most fuel-efficient model lineup in the industry, never put both feet into the U.S. truck market, instead focusing on slow-but-steady growth with popular cars like the Civic and Accord.

It paid off in June. While its major competitors reported double-digit sales declines and burgeoning truck and sport utility vehicle inventories, Honda had a modest 1 percent sales increase. Its car sales were up 20 percent from the same month last year, and the Civic and Accord were among the industry's top sellers.

“They are better positioned than anybody in terms of the products they have for this kind of environment,” said Ron Harbour, a partner with the Oliver Wyman Group and author of a widely respected annual report on auto factory productivity.

Honda's top U.S. executive says it is well-positioned for $4 per gallon gasoline because it always has emphasized small, fuel-efficient vehicles.

“We're not geniuses,” John Mendel, the company's U.S. executive vice president, said Wednesday. “We're consistent.”

Industry analysts say Honda has managed to avoid the sales crisis that has hit the Detroit Three and even Toyota Motor Corp. for two reasons. Although it makes SUVs and a small pickup, it has a strong lineup of cars that get good gas mileage. And its factories can quickly make more of the vehicles that are in demand.

“We can reprogram it to make it build more Civics,” Mendel said. “That's by far one of our competitive advantages.”

On the opposite end of the spectrum are the Detroit Three, most with too few small car models and each caught with well over half their factories building trucks at a time when the market has shifted to 56 percent cars and 44 percent trucks. GM and Chrysler have announced plans to close truck and minivan factories, and Ford is expected to announce cutbacks later this month.

Executives at all three wish they could flip a switch and convert factories from cars to trucks, but Greg Gardner, an analyst with the Oliver Wyman Group, says that's difficult and costly because cars require different tooling.

To go from trucks to cars, an automaker would have to replace the factory's machines for millions of dollars at a time when losses are mounting, Gardner said.

As a result, the Detroit Three could wind up with truck factories sitting idle while they max out the capacity at small-car plants, he said.

Even a short-term solution – somehow cranking up output at existing car plants – isn't easy either.

The Detroit Three say they're moving as fast as they can to bring their factories in line with car demand.

Ford and GM say they have models in other parts of the world that will sell in the U.S., and it just will take time to get them here because U.S. safety and emissions regulations vary from those of other countries.

But analysts say they will struggle and probably have wider losses in the meantime, while Honda and Toyota will continue to grow.

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