Bloomberg News

Honda Speeds Retooled Civic to Hasten U.S. Sales Rally

November 29, 2012

Honda Speeds Retooled Civic to Hasten U.S. Sales Rally

A man works next to a Honda Civic automobile on the company's stand, ahead of the opening press day, at the Geneva International Motor Show in Switzerland. Photographer: Chris Ratcliffe/Bloomberg

In the quickest turnaround in the 39-year history of the Civic, Honda Motor Co. (7267) introduced a modified U.S. model, just 19 months after the current car appeared.

The rapid redo is central to the company’s bid to keep the top-selling U.S. small car ahead of Hyundai Motor Co. (005380) and Ford Motor Co. (F:US) compacts. It’s also seen as giving Honda a chance to address flaws cited in withering reviews and extend a sales rally in the company’s biggest market.

“I can’t think of an example where a refresh was done this quickly and this dramatically with a mass-produced vehicle,” said Jesse Toprak, industry analyst for TrueCar.com, a vehicle pricing and data website in Santa Monica, California. The 2012 version was “safe, dull and rather disappointing,” he said.

The car was seen as such a disappointment that Consumer Reports, which frequently praises Honda models, declined to award the 2012 Civic the magazine’s coveted recommended status, citing shortcomings in the car’s agility, interior materials and cabin noise.

Honda executives are looking to the new Civic as the quickest way to put such moments in the company’s past. The 2013 Civic that debuted today at the Los Angeles Auto Show as it also arrives at dealerships has a new front hood and grille, altered trunk, new rear taillights, standard alloy wheels, redesigned interior and strengthened front end to boost crash safety.

Improving Fortunes

The car’s cabin has new sound-dampening materials, ride and handling have been upgraded and technology features, including a backup camera, Bluetooth phone and audio capability, are now standard, Art St. Cyr, Honda’s U.S. vice president of planning and logistics, said today at the show.

“We’ve made a very good car great,” he said. Base prices for the Civic line rise $160 to cover the changes, he said. The price of the base model sedan had been $18,005.

If the revamped Civic proves successful, it will help propel Honda’s fortunes, which are already improving. The company has set record sales this year for its compact CR-V sport-utility vehicle, and introduced a new version of its popular Accord, putting the Tokyo-based automaker on track to boost U.S. deliveries about 25 percent this year.

That would compare to a 6.8 percent drop in 2011, a year marred by Japan’s earthquake and tsunami and disappointing reviews for the Civic, including one critique in which reviewer Tony Swan of Car & Driver magazine suggested the company had lost its “mojo.”

Honda and other automakers typically redesign models once every five to six years, with a “mid-cycle” refresh happening after three years.

No Conquests

“The loyal Civic buyers still bought it, but it didn’t attract conquest buyers,” Toprak said. “Conquesting buyers from other brands, that’s where making a change like this has an impact.”

Civic deliveries still surged 39 percent this year through October to 254,716 units, as the small car recovered from a dismal 2011. That’s putting it ahead of Toyota Motor Corp. (7203)’s Corolla, as well as Ford’s Focus and Hyundai’s Elantra.

Honda moved to revamp Civic faster than normal because customers expected more from the car, said U.S. Executive Vice President John Mendel.

“There was a bit of a mismatch between expectations for us and where the market had moved,” Mendel said this month in an interview at the company’s U.S. headquarters in Torrance, California. “Customers had a higher expectation for us.”

‘Skate By’

Civic, Accord and CR-V accounted for 73 percent of Honda- brand U.S. sales and 65 percent of total company U.S. deliveries this year through October. Accord is second only to Toyota’s Camry this year among passenger cars and CR-V is the best- selling U.S. SUV.

Honda erred with the Civic last year by not understanding how the market was changing, said Jim Hall, principal of auto consulting firm 2953 Analytics in Birmingham, Michigan.

“It’s as if the company almost thought they were going to skate by on this one, that they could phone it in,” he said.

Competing small cars, including Elantra and Focus, provided more electronics and higher-quality interior materials than the Civic and better styling, Hall said.

Planning for the 2013 Civic began even before the current version came out, according to Mendel and St. Cyr.

While Elantra was among the competing cars Honda studied, “it’s hard to single out a single vehicle, because everybody has raised their game,” St. Cyr said in an interview in Torrance this month. “We benchmark everything.”

Cost Control

To hold down costs, Honda worked more closely with suppliers to find less-expensive ways to make planned improvements, he said. “Engineering smarter parts” was critical to counter Hyundai’s cost advantage, the result of a cheaper South Korean won compared with the Japanese yen and lower wage and materials costs, St. Cyr said.

“You take your part and say, ‘How can we engineer this -- working with our suppliers -- to make something that’s better and cheaper?’” he said. “Then we bring their suggestions into our fundamental design, which say 20 years ago, we didn’t necessarily do.”

He declined to elaborate on costs for the modifications.

Separately, Honda said today in Los Angeles a plug-in hybrid version of the Accord goes on sale next month, initially in California and New York, priced at $39,780. The car allows drivers to go the equivalent of 115 miles (185 kilometers) per gallon, the highest efficiency rating of any plug-in hybrid, Mendel said.

A conventional hybrid Accord that goes on sale in mid-2013 and should achieve fuel-efficiency of 49 mpg in city driving, 45 mpg on the highway and 47 mpg combined, Mendel said. That would be higher than Toyota’s Camry hybrid and match Ford’s new Fusion hybrid. Honda didn’t provide pricing for the car.

2012 Comeback

Honda, like Toyota, saw expectations for large U.S. sales gains undercut last year by the earthquake and tsunami in March 2011 that slowed global production at their plants for months owing to parts shortages. Honda’s production delays were exacerbated later in the year by floods in Thailand that also limited supplies of some components.

This year Honda raised production at North American plants 57 percent through October to 1.44 million Honda and Acura vehicles, keeping it on track to build a record 1.7 million cars and trucks in the region.

Sales Target

The carmaker’s goal is to boost U.S. deliveries this year to about 1.46 million Honda and Acura brand vehicles, up from 1.15 million a year ago, Mendel said in the Nov. 16 interview.

The refreshed Civic also arrives after Hyundai’s Nov. 2 admission that it and affiliate Kia Motors Corp. (000270) overstated U.S. fuel-economy estimates for many models, including the Elantra, for the past two years.

As a result, Civic edged back ahead of Elantra, averaging 28 miles per gallon in city driving and 39 mpg highway, compared with 28 city and 38 highway mpg for the Hyundai model.

Analysts, including Edmunds.com’s Jessica Caldwell, have said Honda will be the main beneficiary of potential Hyundai buyers disgruntled by its fuel-economy revisions.

“The real impact probably won’t be known for a year,” Hall said. “Hyundai still has an image of a company on the way up.”

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

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


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