The Honda Civic will be one of this year’s top-selling vehicles.
Twenty years from now, business schools may be asking their MBA students a question: When every other major automaker hit the skids during the Great Gas Crunch of 2008, which company actually gained sales and seized advantage?
The answer, students, is Honda. And for anyone taking notes, there’s a moral that applies not only to business, but life: It takes brains to hatch a good plan. But it takes guts to stick with it, especially when everyone else is following the herd.
So far this year, new-car sales are down a whopping 10 percent. Yet in June Honda sales were up more than 4 percent. And the more gas prices rise, the more Hondas fly off the lot: The company saw overall sales jump 14 percent in June, with its car models skyrocketing 34 percent to a new monthly record.
What happened? While other companies were going with the flow of cheap gas, Honda stuck with what it knows: building relatively small and efficient engines. Designing cars with fuel economy as a priority, not an afterthought.
Now, when Detroit is once again caught with their pants down — this time in the back of a Hummer — Honda is again positioned to steal their customers.
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Honda’s rivals kept popping the champagne, thinking the truck party would never end. Even Toyota and Nissan pandered to truck buyers. And it’s hard to blame them. Those Japanese brands saw Detroit raking in easy profits, up to $8,000 on every big SUV and pickup it sold. Both companies put on their own cowboy hat, said “Me too, pardner” and built new factories — Toyota in Texas, Nissan in Mississippi — dedicated exclusively to thirsty, super-sized trucks.
When it declined to chase the more-is-better trend, Honda took heat from the media: “Where’s the V8?” was the question regarding models like the Acura RL and Ridgeline pickup, which made do with powerful but higher-mileage V6 engines instead. “It’s missing a six” was the knee-jerk reaction to four-banger models like the CR-V crossover. The company was faulted for refusing to market a full-size SUV.
Dan Bonawitz, Honda’s vice-president of corporate planning, remembers even Honda dealers clamoring for a big V8 pickup built on a traditional truck frame. The company declined.
“We told dealers that the world doesn’t need another body-on-frame pickup with a different name on the grille,” Bonawitz said. “What value were we going to provide customers that no one else does? There was no answer there.”
When I spoke with Bonawitz via cell phone, he coincidentally happened to be driving a Ridgeline from a Honda dealer council meeting in northern California. So what were dealers saying now?
“We’re really glad you didn’t listen to us on that pickup,” Bonawitz said with a laugh, recalling the dealers’ response.
Today, all those overweight, overpowered trucks are gathering dust in showrooms. Owners, unable to afford the fill-ups, are desperate to dump them. And while Honda’s Ridgeline won’t win any beauty contests, its more fuel-efficient, space-saving design may well be the model for the pickup of the future.
Its strategy vindicated, Honda can let gas-weary buyers fall into its lap. Sure, the company has been fortunate to have a lot of new models hitting the market. Yet most of those models seem tailor-made for the era of $4-a-gallon gas. And that is no accident.
Sales of the subcompact Fit hatchback are up nearly 70 percent this year. In May the compact Honda Civic was the best-selling model in America, the first time in 17 years that a pickup truck didn't grab the top spot. The frugal CR-V has become the best-selling SUV, period. On the luxury front, the new Acura TSX is also right for the times: It’s the only sedan in its class powered by a non-turbocharged four-cylinder engine. The result is class-leading fuel economy of 30 mpg on the highway, yet the TSX is still a blast to drive.
Compare Honda’s position to that of Chrysler. The Detroit automaker has relied on pickups and SUVs for a larger chunk of sales than any rival. Now Chrysler is paying for its lack of foresight. Sales are down 23 percent this year, rocking the company to its core.
Even Toyota and Nissan are looking like poker players who joined the game too late. Their truck factories are looking like a sucker bet. Toyota has dramatically scaled back production of its slow-selling Tundra pickup at its sparkling San Antonio plant.
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Certainly, even Honda has to weather the storm. It will build fewer Odyssey minivans and Pilot SUVs to make room for more Civics. But overall, Honda is facing less exposure to a market whose 180-degree switch caught automakers by surprise. It’s not only that Honda doesn’t have to unload lots full of unwanted trucks, it also doesn’t have to spend billions to close or convert truck factories, or write off huge losses on the plummeting value of used trucks that customers return from leases. Nor will Honda have to dismantle expensive foundries that make V8 engines.
Those truck losses dragged Ford to its worst quarterly showing in its 105-year history, a staggering $8.7 billion loss in just three months. Playing catch up, Ford will now begin converting North American truck factories to build the small Fords that are popular in Europe. But even with Ford scrambling, it can’t switch from trucks to cars overnight. Americans would kill for the sleek-looking Ford Fiesta right now, but we’ll have to wait until 2010. Honda’s latest Fit? See you this October.
And compared to Detroit carmakers, Honda — like Toyota and Nissan — has the advantage of flexible manufacturing that can build multiple models on the same assembly line. Bonawitz notes that Honda already builds a small car, pickup and SUV — Civic, Ridgeline and Acura MDX — on a single assembly line in Canada.
“Rather than shuttering plants or a major reconfiguration within a plant, we can shift the volume between models and respond more quickly to changing market needs and tastes,” Bonawitz explained.
On the whole, Honda could be forgiven for engaging in a bit of gloating right now. But it would rather keep doing what it’s been doing. A few weeks ago, I tested the formidable 2009 Acura TL sedan that goes on sale this fall. Under an embargo agreement with the company, I can’t yet reveal the details.
But Honda probably won’t mind if I drop one clue: You won’t have to worry about affording the gas.
Writer:A Michigan native raised and forged in Detroit and a former auto critic at the Detroit Free Press, Lawrence Ulrich now lives in Brooklyn, New York. His reviews and features appear regularly in The New York Times, Robb Report, Popular Science and Travel + Leisure Golf.
Source: MSN Autos