Bloomberg News

Honda Says Reworking Civic as Part of Plan to Lift Sales by 24%

December 22, 2011

Dec. 21 (Bloomberg) -- Honda Motor Co. is sprucing up its Civic sedan, which received poor reviews, after less than a year on the market as part of a plan to boost U.S. sales by 24 percent in 2012 for its namesake brand.

Honda will unveil “upgrades” on its 2013-model Civic, going on sale late next year, Tetsuo Iwamura, the automaker’s top North American executive, said in an interview yesterday in Romulus, Michigan. The current Civic failed to receive the “recommended” status its predecessors had from Consumer Reports magazine, which criticized it for a decline in interior quality, choppier ride, and more road noise.

“Building a good car isn’t enough for us, we have to build a great car,” John Mendel, Honda’s executive vice president of sales in the U.S., said in the same interview. “We think we can do better and the customer expects that and we will.”

U.S. sales of the Civic have fallen 13 percent this year to 200,690, according to researcher Autodata Corp. Honda’s U.S. sales declined 5.3 percent through November while industrywide deliveries gained 10 percent as the company suffered inventory shortages caused by floods in Thailand in October and a March earthquake and tsunami in Japan. The company has about 117,000 models in inventory, or a 41-day supply, less than half what it should have, Iwamura said.

“Hopefully, by the end of March next year” Honda will have full inventory, Iwamura said. “If John could sell more, then it will be the end of April or May.”

U.S. Reliance

Japan’s third-largest automaker counts on the U.S. for the largest portion of its global sales. Tight inventory and competition from rivals including Hyundai Motor Co. and Kia Motors Corp. cut Tokyo-based Honda’s U.S. market share to 9 percent through November from 10.5 percent a year earlier. Combined share for South Korean affiliates Hyundai and Kia rose to 9 percent from 7.8 percent during the same period.

Honda rose 2.2 percent to 2,320 yen as of 10:44 a.m. in Tokyo trading. The benchmark Nikkei 225 Stock Average gained 1.5 percent.

The automaker has set a target to increase U.S. sales of its namesake brand to 1.25 million models next year, from about 1 million this year, Iwamura said. It plans to boost sales of its Acura luxury line by 43 percent to 180,000 from about 126,000 this year, he said.

“It looks like quite a high jump, but because of the availability problem we had a really low year this year,” Iwamura said. “That is the reason why growth looks huge, but for us, it’s a natural growth.”

Honda brand’s U.S. sales totaled 931,885 through November while the Acura brand sold 110,170 vehicles, according to Woodcliff Lake, New Jersey-based Autodata.

Replenished Inventory

Sales growth will be driven by replenished inventory and a 2013 lineup with more than 70 percent new models, Iwamura said. Upgrading the Civic, Honda’s second best-selling car in the U.S., and other models is an important part of that growth strategy, he said.

“Civic is a good product; of course the expectation of the marketplace for Honda product is quite high,” Iwamura said. “We have to once again make it great.”

Competitors’ small cars are improving, which is challenging Civic, Iwamura said.

“The gap between Civic and the competitors has been narrowed,” Iwamura said. “We have to once again make the gap wider.”

Honda will upgrade the styling, driving characteristics and comfort of the Civic and other models for the 2013 model year, Iwamura said.

Consumer Reports

The 2012 Civic “ranks near the bottom of its category,” David Champion, senior director of the magazine’s auto-test center, said in August. Other reviews marked down the Civic for having a 5-speed automatic transmission, while competitors offer fuel-saving six-speed gearboxes.

“We disagree with” Consumer Reports, Mendel said. “Did they make some points? Yes they did.”

While competition is growing with new small cars such as Ford Motor Co.’s Fiesta, General Motor Co.’s Chevrolet Cruze and Korean models, Honda’s sales decline this year is due to inventory constraints, not product shortcomings, he said.

“We haven’t gotten worse, everybody else has gotten better,” Mendel said. “Where we used to be four or five laps ahead in the race, there’s more people on the same lap with us.”

Honda withdrew its profit forecast after net income fell 56 percent in the three months ended Sept. 30, to 60.4 billion yen ($761 million), from 135.9 billion yen a year earlier. Honda said Nov. 30 that it would give a full-year profit forecast at the end of January, after releasing fiscal third-quarter results.

Honda’s U.S. headquarters are based in Torrance, California.

--With assistance from Alan Ohnsman in Los Angeles. Editors: Bill Koenig, Jamie Butters

To contact the reporter on this story: Keith Naughton in Romulus, Michigan, at knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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