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How Honda Is Stalling In The U.S.
Its most popular models show signs of weakness -- and the mighty yen is hurting profits
BusinessWeekOnline

Until recently, Honda Motor Co. (HMC ) seemed unstoppable. With its sporty Civic compact, stalwart Accord sedan, and a fleet of snazzy sport-utility vehicles and minivans, sales seemed to go nowhere but up. Profits soared, and Honda's U.S. market share rose to 9% last August from 6.7% in 2000.

These days, though, Honda doesn't look so invincible. In April, once-hapless Nissan Motor Co. (NSANY ) overtook Honda as Japan's second-largest car producer. And on Apr. 27 the company surprised investors by slashing this year's earnings forecasts by 7%, to $5.2 billion. Its profit for the quarter ended in March fell 36.5%, to $682 million. Even as Honda has started to recover from a sales slowdown in Japan, its U.S. market share has slipped to 8% in the first four months of the year, from 8.3% for the same period in 2003. While Honda's Tokyo-traded shares have risen 13% since last May, those of rival Toyota Motor Corp. (TM ) have advanced 42%.

What's going on? Honda is paying the price of its large exposure to the U.S., where the company makes 80% of its profits. The U.S. problem is twofold: sales of key models are slipping, and the rising yen lowers the value of U.S.-derived profits when they're translated back into the Japanese currency. The company predicts that the strong yen will reduce income by $1.22 billion in the current fiscal year, even worse than the $889 million currency hit in the fiscal year ended Mar. 31.

But if the yen problem can be blunted, the larger issues of Honda's positioning in the market and the strength of its lineup are harder to address. The weakness shows in the latest numbers for core Honda products. Sales of the flagship Accord have fallen by 9% so far this year. The Civic has gained 1.8%, but mostly because of rich incentives added after sales slipped by 4.3% last year.

Honda is struggling in newer segments, too. The boxy Element SUV hasn't been the hit among young drivers that Honda had hoped, with sales down 9% this year. Even the Odyssey minivan, once the vehicle to beat in its class, is down by 9% this year as would-be buyers await its relaunch in the fall. And Honda had to set aside $369 million to cover recall and warranty costs for 600,000 SUVs and minivans with transmission problems. "Honda's situation in the U.S. isn't so good right now," says Yoshio Watanabe, an analyst at Mizuho Securities Co.

Honda has long been successful because it entered mainstream market segments with offbeat cars. Its high-tech engines offer the best of two worlds: They're zippy and fuel-efficient. The cars handle well, offering a little fun to go with their high quality and utilitarian design. But the current Civic is getting long in the tooth. Time was, the cars were so cool that young car buffs spent thousands of dollars to kit them out like race cars. But these days the hot-rodders are turning to the likes of Subaru's WRX and the Dodge Neon SRT-4. The current Civic, launched in 2000, has soft suspension that enthusiasts say doesn't handle well. Plus, the most powerful model, the Civic Si, only has 160 horsepower, compared with 200 hp or more for some rivals. Although the hot-rodders don't buy a lot of cars themselves, they give the brand a cachet it can't afford to lose. "For the guys going to the strip, the Civic isn't much to show off," says Justin Sharp, a sales manager for Wings West, a custom auto-parts maker in Newport Beach, Calif.

Honda says it would cost too much to revamp its factories to produce all-new platforms and big engines for trucks and luxury cars, so a big shift isn't in the cards soon. The auto maker only has three cars in the pipeline for this year: the new Acura RL sedan, a revamped Odyssey minivan, and the latest version of the gasoline/electric hybrid Accord. Rivals are rushing out many more models. "The number of products [launched by Honda] will be smaller than any other major player," says Kunihiko Shiohara, an analyst at Goldman Sachs (Japan) Ltd. (GS ).

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I was wondering how long it would take before the Civic stopped being the cool car that everybody loves. I honestly believe them to be very handsome cars, but now they're starting to be eclipsed by more powerful, cheaper models. Even the new Cobalt will far outpower the current Civic. The Accord redesign has also hurt sales of those cars. Honda just doesn't have the lead on the domestics that it used to. Now the Honda cars are just as big as American cars and all of the other manufacturers are offering large incentives and are introducing a ton of new stylish cars.
 

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I was wondering how long it would take before the Civic stopped being the cool car that everybody loves. I honestly believe them to be very handsome cars, but now they're starting to be eclipsed by more powerful, cheaper models. Even the new Cobalt will far outpower the current Civic. The Accord redesign has also hurt sales of those cars. Honda just doesn't have the lead on the domestics that it used to. Now the Honda cars are just as big as American cars and all of the other manufacturers are offering large incentives and are introducing a ton of new stylish cars.

I'm in complete agreement with IBECHIP. When the Accord was restyled in 2003,
I was left bewildered and disapointed. The proportions didn't look correct, and the
style was weird. It appears that others got turned off by the styling too. The
previous generation might have looked conservetive, but at least it was tasteful.
Along with the aging Civic and Odyssey, I can see why there hurting. They'll
right there ship again though, as Honda is still a very respected maker of
reliable and well made automobilies. They just need to put some new tasteful
product out there under the Honda label. There going in the right direction
with there new Acura models, just follow it up with the Honda lineup too.
 

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Originally posted by ponchoman49@May 18 2004, 10:18 AM
What goes up must come back down!
HEY, I'M LISTENING TO THAT SONG RIGHT NOW!!! lol
 

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Originally posted by ilaoc77@May 18 2004, 02:22 PM
it sounds like they won't be the toughest competition to beat anymore, it has seemed to shift to their newly reborn rival, Nissan.
i don't think nissan is the well-rounded contender toyota is or honda was. nissan has some low-class interior bits, and some pretty big quality hiccups, along with some growing pains arising from growing too quickly. so while they're sailing along now, i don't think there going to be a sustained concern. toyota still appears close to bulletproof... perhaps the leak called scion will sink the ship! hahaha! okay, maybe not, but it's a start!
 

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Originally posted by paul8488+May 18 2004, 05:03 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (paul8488 @ May 18 2004, 05:03 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-ilaoc77@May 18 2004, 02:22 PM
it sounds like they won't be the toughest competition to beat anymore, it has seemed to shift to their newly reborn rival, Nissan.
i don't think nissan is the well-rounded contender toyota is or honda was. nissan has some low-class interior bits, and some pretty big quality hiccups, along with some growing pains arising from growing too quickly. so while they're sailing along now, i don't think there going to be a sustained concern. toyota still appears close to bulletproof... perhaps the leak called scion will sink the ship! hahaha! okay, maybe not, but it's a start! [/b][/quote]
Yeah Scion wasn't exactly the roaring success that Honda thought it was going to be. I don't know about Nissan, tho. They have both style and power not to mention the cult following of the 350Z, beautiful car.
 

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This is a slowdown in growth, not stumbling. They still make the best products in their respective class. The Accord wins a C/D 10best award almost annually and has a V6 and interior the Malibu would kill for. Same for the Passport and Odessey. The Cobalt might catch up to the current Civic just in time for the new Civic to raise the bar(is any else tired of hoping GM will catch up?)

Honda is an engineers company. They make the smoothest and most tracable engines. Wind up to redline a 3.0 VTEC and GMs 3.8( stand back, it might blow!) and you will see. Their engine rev like a mechamical symphany, like ripped silk sheets. Go row the S2000s shifter for more proof.

I also admire Honda because they are the best corporate citizens of the major auto companys. They dont belong to the anti-consumer/anti-environment Automble Manufactureing ***. or what ever its called now and their employees are not union because they dont what to be. They should merge with BMW. Now that would a company with engineering black magic!/
 

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Just a few thoughts:

I'm not convinced yet of Honda's long-term failure based on recent setbacks, nor am I convinced of Nissan's long-term success based on its recent achievements.

Much to my chagrin, I am mightily impressed by Toyota; they are relentless in their quest to perfect themselves. And don't be fooled; Scion will be a tough competitor in the low end of the market. To think otherwise is wishful thinking. When Rick Wagoner met with GM's power-players a few weeks ago in Disney World, to my knowledge the only topic of conversation was Toyota. And rightfully so...

And, I agree with free_energy0, to some degree: "...is any[one] else tired of hoping GM will catch up?" Perhaps it reflects frustration, but at times I echo the sentiment. Focus, GM!
 

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Umm, I have wound up a no-torque vtec. Several of them. Their 4's and their 6's. I have also wound up a 3.8, a 3.8S, and a 405 HP 5.7 liter. I'm sorry, none of those engines caused their respective vehicles to shake, or jitter, or anything. None of those engines seemed to have any problems revving whatsoever. What you mean to say, is that you prefer a smaller engine that has to rev a lot more to make it's power. It's like the styling of a car, some like curves, and some like angles. I too have opnions as to the way I like things styled, but that doesn't automatically make everything that's not that way bad.
 

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Originally posted by free_energy0@May 18 2004, 01:52 PM
Honda is an engineers company. They make the smoothest and most tracable engines. Wind up to redline a 3.0 VTEC and GMs 3.8( stand back, it might blow!) and you will see. Their engine rev like a mechamical symphany, like ripped silk sheets. Go row the S2000s shifter for more proof.
It has to do with cost, not design. IMO, the 3.8s are a much better design than most any 6potter out there right now, and the fact that they've been around forever in one form or another proves it.

If they don't like to be revved up high, it's because of valvetrain limitations and nothing more. Better lifters, pushrods, springs and rockers, and you can have an engine that operates comfortably in the 7000+ region, assuming the rotating assembly is strong enough to hack it.

Fact is, the 3.8s are amazingly street-friendly, torquey engines that are cheap to build. Pour as much money into a 3.8 buildup as the cost of a VTEC engine, and you'll have a 300+hp motor that'll live forever.

As for GM playing catch-up... tell me about it.

Interiors are crap... well not that bad, but nowhere near honda/toyota level, standard features are lacking (Camry vs GP at similar price levels: You get automatic, digital dual zone climate control and a much better radio in the Camry.)

If there are two strong points that GM has and no one can really match..

1) Styling

and

2) Powertrain quality.
 

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Originally posted by free_energy0@May 18 2004, 01:52 PM
The Accord wins a C/D 10best award almost annually and has a V6 and interior the Malibu would kill for.
The new Accord has a very nice interior, but I find the exterior to be ugly. The new Accord has been on the road for over a year and I still haven't warmed up to it. There is just something about the car that I can't stand. The last generation Accord was rather bland, but it didn't put me off.

Same for the Passport and Odessey.
Passport? You mean the Pilot? I hope you didn't mean the Isuzu Rodeo/Passport interior.

Wind up to redline a 3.0 VTEC and GMs 3.8( stand back, it might blow!) and you will see.
The 3.8 doesn't need to wind out to 6K RPMs to produce its power. And I don't understand why the 3.8 would "blow" at redline.
 

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Simply put the 3.8 liter GM powerplant is not up to the
same standards as there Japanese competitors. All you
need to do is drive a Honda, Toyota, or Nissan with
there V6 powerplants to feel the ultra smooth engines
that are worlds ahead in refinement to the 3.8 liter.
The GM V6 weezes and feels strained upon hard
accelerating. You'll never feel that with the Japanese
powerplants.
 

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I agree about the Accord's interior. I like it much better than the Malibu's interior. I'm not a super huge fan of the tail-end of the Accord sedan, but if I needed a sedan, I'd look at the Accord. I like the Accord coupe much, much better. I'm not much a fan of the Malibu's exterior or interior. I don't know what GM was thinking, but I think they missed the boat again on this car. Too bad.

As for Honda going down, well, I have a strange feeling about that. I used to be a big "Buy American" proponent. I could not stand Honda and Toyota, but you know what, I have changed my position on these 2 companies over the last few years. Let's face it, they have repeatedly outsmarted our Detroit companies by continually raising the quality bar (either real or perceived), they have added more life and detail to their cars, and now they are starting to add more power through alternative engineering (Lexus RX400h and Accord hybrid). Every time it seems Detroit is catching up, these two pull out ahead on new items of technology. I have become so impressed by the way these 2 companies handle their business that I would hate to see either companies go. They have done the work that a capitalistic society expects. They started off with nothing - no support, no dealership network, no image, etc.... but they worked their butts off to build vehicles that improve society. I would hate to see Honda get kicked out when other car companies that have been living off society's "well-fare" system for far too long get to stay.

And not only is Honda a car company, it also makes lawn mowers, ATVs, generators, air plane engines, and now even robots that aim to assist disabled people. Honda is always thinking about ways of improving society. I would hate to see that go away. Yes, I still back Detroit, but it becomes harder when I see Honda, Toyota and others continue to ousmart Detroit. Maybe these things aren't true or important, but Honda and Toyota sure seem to be winning the perception battle - which is another part of the battle plan.
 

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Somebody above mentioned that this might be a slowing down period for Honda due to its old models. I agree with this analysis. At the end of this summer, Honda is suppose to introduce a new Odyssey minivan. The current one has been around for a while, but it has held up strong. Only the new Toyota Sienna was able to push the Odyssey around. From the rumors floating around the Net (and you know how those go), the next Odyssey will have 250 hp with a displacement on demand V-6 engine that is suppose to get 30+ mpg. From what I understand, the interior is suppose to be a knockout as well. I don't know what the exterior will look like, but I'm afraid of what it might look like. In any case, this minivan could regain its top spot in the minivan war. We'll see how Honda does on it. At least it will be a better effort than what Ford or GM did on their "new" minivans.

This fall we are suppose to see a hybrid Accord that rumors claim will see 270 hp and yet receive 35+ mpg. If so, and it is not too expensive, Honda could sell a boatload of these.

On top of that, there is suppose to be a new Civic coming up in a year or so, and then this new Honda Jazz compact car that if styled and sized right could rejuvenate Honda. And nobody knows how Honda's SUT will do in the market. Will it bomb? or will it succeed? People are already laughing at the prospect of this truck's future, but I don't think we should laugh at Honda too much anymore. It was still able to move the Element.

Honda's future isn't as solid as Toyota's, but Honda has a good shot remaining a vibrant player in this market. It has the support and image, now it needs to work on styling and performance.
 

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Originally posted by impala02@May 18 2004, 11:18 PM
Wind up to redline a 3.0 VTEC and GMs 3.8( stand back, it might blow!) and you will see.
The 3.8 doesn't need to wind out to 6K RPMs to produce its power. And I don't understand why the 3.8 would "blow" at redline.
Exactly. Say what you will about the 3800's refinement, but it's durability is beyond reproach. The fact that it's been used in police Impalas successfully for years now is a huge testament to that. I doubt that there is a more demanding environment for an engine than that on the road.
 

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Originally posted by Mikkoo@May 19 2004, 01:42 AM
Simply put the 3.8 liter GM powerplant is not up to the
same standards as there Japanese competitors. All you
need to do is drive a Honda, Toyota, or Nissan with
there V6 powerplants to feel the ultra smooth engines
that are worlds ahead in refinement to the 3.8 liter.
The GM V6 weezes and feels strained upon hard
accelerating. You'll never feel that with the Japanese
powerplants.
GM has the northstar line that completely annihilates the most refined *** motors.

The 3.8 is a low-buck engine with a nice torque curve. It lasts forever. Maybe the 'lack of refinement' is because of the exhaust note.

Every 3.8-equipped car I've driven has had a fantastically ballsy exhaust note. Some people don't like this. Doesn't feel strained to me at all.

What you'll never feel with a japanese powerplant is excitement at being slammed into your seat, something the 3.8 does in spades off-idle when the tires hook.

Refinement is relative. I can understand how people like refinement, but i'm one of those people who like it whentheir car shakes and rattles like hell at every stop light due to the day-long cam profile.
 

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Give Honda a year or two and I guarantee you the Element will lose all those ugly plastic panels, much like the Avalanche now offers a decladded version. It still won't appeal to everyone, but that would make it look 1000x better than before.
 

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Originally posted by free_energy0@May 18 2004, 06:52 PM
Same for the Passport and Odessey. Go row the S2000s shifter for more proof.

Passport = rebadged Rodeo, IE partial GM ownership
S2000's beloved shifter is made by Aisin, and they will supply the same to the Kappa line.

From the last paragraph it sounds like you read that book (or shall i call waste of paper) that Micheline Maynard wrote "The End of Detriot" Talk about bias, it sounded 327 page issue of Car and Driver
 
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