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."