This year, as Toyota recalled millions of faulty vehicles in the US and elsewhere, Honda looked likely to benefit from its bigger rival’s woes.
Much like Toyota before its quality crisis, Honda, Japan’s second-largest carmaker, is known for making safe, reliable, practical vehicles that hold their resale values well. Its Accord and Civic models have for decades been among America’s best- selling cars.
In Europe – including Russia, where Asian cars sell well – its share fell from 1.9 per cent a year ago to 1.4 per cent in the same period, representing a drop in sales of about 25 per cent.
In the US, its largest market, the carmaker’s share fell to 10.1 per cent in September from 10.7 per cent a year earlier, according to JD Power, the consultancy.
Takanobu Ito, Honda’s chief executive, had in fact been braced for trouble in the wake of the Toyota recalls. Asked about his rival’s problems in March, he told the Financial Times: “We have a concern that it may lead to customers’ perceptions of Japanese carmakers altogether as [being] negative.”
At the time, bullish analysts dismissed such talk as politically calculated. Honda, they reasoned, was simply being careful not to appear to take comfort from its competitor’s problems.
Yet now it appears that Honda was indeed hurt by Toyota’s problems, which dented Japanese carmakers’ long-standing reputation for reliability, and caused more US car buyers to turn to rival brands, including South Korea’s Hyundai.
“We thought Honda would take every Toyota customer,” says Jesse Toprak, vice-president for industry trends with Truecar.com, a US car-buying website. “That didn’t happen at all.”
Hyundai, in particular, attracted recession-stricken Americans by producing well-styled models perceived as offering value in tough economic times – the same ethos that won Honda a US following in the 1970s.
While Honda’s recent models have garnered mostly good reviews, they have struggled to compete with more aggressively styled new cars made by rivals, including Hyundai’s Sonata and General Motors’ Chevrolet Cruze. Sales of Honda’s two new hybrid models – the Insight, intended to take on Toyota’s Prius, and the sporty CR-Z – have both been well below the company’s expectations.
“The safe-choice perception has not helped Honda in the past year particularly. Consumers are bored with that image,” says Mr Toprak. “The fact that there have been so many other compelling new product introductions from the competition – and the fact that Honda’s line-up did not quite live up to that – also hurt them.”
In Europe, Honda’s CR-V small sport utility vehicle was a trailblazer when it was launched more than a decade ago, but now sits in an increasingly crowded segment that also includes Volkswagen’s Tiguan and Ford Motor’s Kuga.
The soaring yen also blunted Honda’s competitive edge in Europe, as most of its new models launched in the past three years, including the Insight, CR-Z, and Accord, were imports.
Honda has not been helped by its famously conservative policy on avoiding incentives meant to move cars off forecourts, which it maintained through the crisis. “Honda has not entered into discounting in the same way as others in the market during the recent tough times,” says Jonathon Poskitt, analyst with JD Power in the UK.
Honda’s strategy of not pursuing sales has hurt its market share this year, but should help the carmaker’s profit margins. Nor has all the news this year been bad for Honda.
The brand still enjoys some of the industry’s highest loyalty rates in the US. This month JD Power’s Customer Retention Study found that Honda and Ford shared top spot in holding on to its customers, both car makers having raced past Mercedes-Benz.
The bad news for Honda, and for its competitors, is that car buyers as a whole have become less loyal to brands, according to Truecar’s Mr Toprak.
Analysts say that Honda’s cars will need to compete on their own merits on an increasingly tough marketplace.
At next month’s Detroit car show, Honda will unveil a sportier, redesigned version of the US-model Civic, which was America’s fourth best-selling car in the year-to-end-November, according to Automotive News, the trade publication.
The European version of the car is due to be unveiled late next year and go on sale in 2012.
Honda is also expected to introduce a redesigned CR-V late next year. Kurt Sanger, an automobile analyst at Deutsche Bank, says that between the CR-V and the new Civic, the company is well on its way to refreshing its line-up. “These two models combined with the all new Odyssey accounted for 48 per cent of Honda’s US sales in 2008, which represents a massive turnover of the product portfolio in only 12 months.”
In Europe, Honda recently launched a new version of its Jazz small car (called the Fit in the US and Asia) which it will offer in a hybrid version as well. It is making the petrol version of the car at its plant in Swindon, England.
