Image: Honda 50th anniversary
AP
In 1959, American Honda Motor Co. incorporated in Los Angeles as the first overseas subsidiary of Japan-based Honda Motor Co.
updated 6/12/2009 10:23:09 AM ET 2009-06-12T14:23:09

In 1973, the local newspaper in Akron, Ohio, sent a photographer to Rick Case's filling station to take pictures of his signs bearing gas prices. The Middle East oil embargo was in full swing. Gas prices were around 30 cents a gallon and rising fast.

Case also owned the Honda dealership next-door. Before the photographer arrived, he changed the signs to read 99 cents — as high as the displays would go back then.

Case was on to something. A confluence of political and market forces gave Honda Motor Co. its big break in the U.S. in the '70s. Consumers who were suddenly worried about gas prices snapped up fuel-efficient small cars like the Civic that Case and a handful of other Honda dealers were selling. The Japanese automaker has found success by offering Americans affordable, reliable gas-sippers ever since.

"I was really hanging my hat on Honda, and I'm glad I did," said Case, who now owns several Honda and other dealerships in Ohio, Florida and Georgia. "The gas thing really helped get them attention."

Honda marked its 50th anniversary in the U.S. Thursday, and new challenges confront the automaker. It will have to mount a stout defense of its turf as gas prices rise again, fuel-economy rules tighten and the market for small cars grows out of the wreckage of the Detroit Three.

"The industry is coming around to where Honda is, where (its) strengths are right now," said Jeff Schuster, executive director of vehicle forecasting for J.D. Power & Associates. "So they face a tougher competitive landscape."

Soaring gas prices
Japanese engineer Soichiro Honda founded Honda Motor Co. in Tokyo just three years after World War II as a manufacturer of small motorcycles. The company established American Honda Motor Co. in 1959, signed up a handful of dealers and began importing small bikes like the Honda 50 to the U.S.

The company's first import car was the two-door N600, which sported a two-cylinder engine and a sticker price of $1,295.

Honda's big break came with the oil embargo, which sent the price of gasoline soaring. Fuel-efficient cars from companies like Honda suddenly looked a lot more appealing to American consumers.

Between 1973 and 1976, sales of the compact Civic more than quadrupled to 132,286, and they continued climbing for another three years. By the end of the decade, Honda had opened its first U.S. plant in Marysville, Ohio, and others sprung up across Ohio, Alabama and Mexico to build products from motorcycles to lawnmowers.

Meanwhile, a relentless focus on quality control "created a contrast with where American cars were going," said Fred Notehelfer, a professor specializing in modern Japanese history at the University of California at Los Angeles. American cars at the time, he said, "were often flashy but falling apart very quickly. ... Japanese cars, especially Hondas, would keep running."

Honda reaped the benefits of a second energy crisis last year, when an oil bubble pushed gas prices above $4 a gallon. As Detroit and its SUV-heavy lineups suffered, Civic sales in the U.S. climbed to a record 339,289.

Honda's overall U.S. sales, however, declined 8 percent as the economy soured. The downturn accelerated and sales kept falling. The company has fought back by slashing production and offering buyouts and sweetened retirement packages to its employees.

Muscling in on Honda’s turf
The turmoil wracking the auto industry presents a paradox for Honda. On the one hand, Honda has weathered the crisis because it hasn't depended on once-profitable gas-thirsty vehicles as much as its Detroit rivals. On the other hand, its competitors now have little choice but to muscle in on Honda's turf.

Last month, the Obama administration laid out stricter fuel-economy rules for the auto industry, raising fleetwide average efficiency to 35.5 mpg by 2016. That's likely to benefit Honda, which already has a sturdy lineup of fuel-efficient cars like the Fit, the Civic and the Insight hybrid. But it also means it will have to confront new competitors armed with a wider lineup of fuel-efficient cars.

"Everybody is moving kind of at warp speed toward the position to where Honda is right now," J.D. Power's Schuster said.

On Wednesday, Italian automaker Fiat Group SpA sealed a deal to buy the bulk of Chrysler LLC. The Auburn Hills, Mich., company is now poised to introduce new small cars to the U.S. like the two-door Fiat 500, along with vehicles branded under the sporty Alfa Romeo brand.

Chrysler's crosstown rivals have small-car plans, too. General Motors Corp., which is also operating under bankruptcy protection, plans to start building the subcompact Chevrolet Cruze next year and says it will get about 40 miles per gallon. GM will also start selling the Chevrolet Spark minicar in the U.S. in 2011.

Meanwhile, Ford Motor Co. is bringing its popular subcompact Fiesta to the U.S. from Europe next year, and Toyota Motor Corp. is working to bring a new car to the U.S. modeled after its iQ microcar.

Honda also plans of electrify its fleet. The company, which just relaunched its Insight hybrid as a cheaper alternative to the Toyota Prius, plans to sell a hybrid based on its sporty CR-Z concept sometime in 2010. It will also offer a hybrid version of the Fit subcompact and is planning a new version of its Civic hybrid.

John Mendel, executive vice president for sales at American Honda, said the company already competes with small-car makers in Europe and plans to succeed in the U.S. by sticking to its strengths.

"We face those challenges globally now," he said. "That's not to diminish, certainly, the competition we see coming with a stronger, restructured GM or Chrysler or Ford."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Photos: Honda U.S. celebrates 50 years

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  1. In the beginning

    In 1959 American Honda was incorporated in Los Angeles. The company only sold motorcycles at the time and signed up U.S. motorcycle dealers. It sold just over 1,700 that first year. (AP) Back to slideshow navigation
  2. Starting small

    In 1969 Honda begins selling its first automobile in the U.S.: the two-door, two-cylinder N600 sedan. The car's price: $1,275. (Honda / AP) Back to slideshow navigation
  3. Civic-minded

    Honda introduces the Civic hatchback in 1973 at a manufacturer's suggested price of $2,150. The car hits showrooms on the eve of the energy crisis. Sales of the vehicle increased sevenfold between 1973 and 1974. (AP) Back to slideshow navigation
  4. Boomers on board

    The Accord, introduced in 1976, was a hit among baby boomers and established Honda as a top maker of family cars. (AP) Back to slideshow navigation
  5. Born in the U.S.A.

    The first motorcycle produced by Honda of America rolls off the company's Marysville, Ohio, assembly line in 1979. (AP) Back to slideshow navigation
  6. Red carpet debut

    This 1982 Accord became the first car to drive off Honda's assembly line in Marysville, Ohio. Today, the plant also builds the Acura TL sedan and the RDX crossover. (AP) Back to slideshow navigation
  7. A-lister

    With the Legend sedan in 1986, Honda launched the Acura brand to compete with established European luxury car makers like Mercedes-Benz and BMW. Acura remains an established luxury line, but Toyota's Lexus brand eventually overtook it in sales. (Honda / AP) Back to slideshow navigation
  8. Milestone

    Honda of America worker Judd Powell gives a final paint inspection to a Civic four-door Sedan, the one-millionth car produced at the Marysville, Ohio, plant, on April 8, 1988. (Greg Sailor / AP) Back to slideshow navigation
  9. Back at ya

    Honda began exporting cars from Marysville, Ohio to Japan in 1988. (AP) Back to slideshow navigation
  10. Emissions controlled

    In 1995, the Honda Civic meets Low Emission Vehicle standards and goes on sale in California. In the 1990s, Honda introduced the U.S. automobile industry's first low-emissions vehicles, meeting challenging new emissions requirements in California while also enhancing fuel efficiency. Ultimately, Honda introduced the LEV Civic in all 50 states even though there was no requirement to do so. (AP) Back to slideshow navigation
  11. It takes two

    Honda launched the Insight in 2000. It was the first mass-produced gasoline-electric hybrid built in the U.S. However, the vehicle sold poorly and the Toyota Prius, launched two years later, overtook it as the dominant hybrid in the U.S. (AP) Back to slideshow navigation
  12. The next generation

    The 2010 Honda Insight became the most affordable hybrid in the U.S. (AP) Back to slideshow navigation
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