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Honda sputters off the line in 2004

/ Source: Forbes

The last time Honda sales lagged the previous year was 1993, when it sold 716,000 vehicles. Honda has been climbing since. Last year the Honda division sold 1.2 million cars and trucks, while its luxury division, Acura, moved another 200,000 units. In total, Honda sold 1,350,000 vehicles in the U.S. in 2003.

So it's a surprise to now see Honda Motors running behind a year ago, and slipping a bit in market share. At the end of four months in 2004 the Honda/Acura car/truck total was 426,730, down from 428,289 the year before. That's only a tiny percentage, but we're not used to Honda showing a sales decline. Actually, Acura is doing fine, but the Honda division is off 3 percent from the year before.

What's wrong at Honda?

"Reports of our death are exaggerated," says Dan Bonawitz, Honda vice president of corporate planning. He predicts boldly that Honda company-wide sales this year will run ahead of last year, and next year will move ahead of this year.

Still, things have changed; something is different.

One theory is that Honda's specialty, the family sedan, is in the doldrums, Sure enough, the Accord, Honda's best selling car, slid 9 percent the first four months this year. Bonawitz agrees that the market's drift away from the family sedan hurts, and competitors get desperate with incentives and steeply discounted prices to fleet buyers. In contrast, Honda doesn't give away cars just to maintain volume or market share.

Honda pays out some money to sell vehicles, but it is just hundreds, not thousands, of dollars per car, and the rebates usually go to dealers, not customers. But the strong reputation of the name means that dealers can often offer a better lease deal than competitors or a better trade-in on an old Honda.

The only other Honda vehicle with solid decline this year is the Odyssey minivan, which is down 9 percent. The Odyssey still is highly rated, but the newer Toyota minivan — the Sienna — is also a quality vehicle and is probably grabbing customers.

America has been the strongest of Honda's three great auto markets (the U.S., Japan and Europe). So the increased value of the yen and the failure to grow in this market makes for trouble. Honda's profits in the last quarter — the fourth quarter of its fiscal year — fell 36.5 percent,

Honda is close to introducing some new vehicles that could help it reduce its sales slide. Coming this fall is an Accord hybrid (gas/electric) that also has a cylinder cutoff feature, whereby its six-cylinder engine will take three cylinders out of action when the car is cruising. It is likely that the car will have the punch of a V-8 but the fuel economy of a four-cylinder model, meaning around 35 miles per gallon.

Next spring Honda will introduce its first pickup, although it will be called a sports activity truck. The model will come with standard all-wheel-drive to compensate for using a front-wheel-drive platform.

A New Odyssey minivan also comes this fall. "It will again raise the bar for minivans," promises Bonawitz. And around the same time, the Acura division gets a new luxury Acura sedan, which will come with standard all-wheel-drive. Volume won't be large, say 15,000 a year, but it might put Acura up with the luxury boys again.

"We were late coming to market with trucks. We sold less than 5,000 ten years ago. Last year it was 500,000, but we're still in the low 40 percent range for trucks," Bonawitz says. "And we're still production constrained." meaning some vehicles are in short supply.

The dealer inventory for the Honda Pilot sport utility vehicle is 14 days; the inventory for the Acura MDX SUV is only 12 days. Among Detroit companies, 60 days supply or more is common. Thanks to a recent change in Honda's production system, the company is building both Pilot SUVs and Odyssey minivans in a new Alabama plant. This raises capacity for the two vehicles to a total of 300,000. The company is also adding flexibility to its assembly line at the Civic plant in East Liberty, Ohio so that Accords can be built in the same facility. This move will create room for more Acura cars to be built at another Ohio plant.

The gasoline price situation could help, too. Hondas are at the top of the list of fuel-stingy cars. Honda currently builds a hybrid version of its Civic sedan, which posted 9,000 sales in the first four months of this year. No one knows where fuel prices are headed, but higher prices give Honda some advantage.

What's clear is that the business is getting tougher for Honda. The big jumps in sales of the past may be unlikely now. Honda's refusal to go to V-8 engines or rear wheel drive may hurt in its truck and luxury car businesses. But its strong reputation for quality and engine technology is a powerful plus in the automobile business.

Honda has stumbled. But it won't fall.