Honda looks for recovery in 2012

Honda looks for recovery in 2012

When everything seems to be going wrong, hire Jerry Seinfeld, bring back Ferris Bueller and pray. And even then things might not improve all that much.

That’s the predicament for Honda as it tries to recover from its troubles in the past year, when a series of natural disasters in Asia caused sales to plunge, and an important model, the revamped Civic, got such a poor reception that the company rushed to make changes.

Honda chief executive Takanobu Ito was so fearful that the company might be “jinxed” that he spent New Year’s Day at a Japanese shrine in the hope of eliminating the “bad omens,” he said recently.

In commercials for Honda shown during the Super Bowl, Seinfeld is desperate to get the first Acura NSX, a concept car not coming to market for several years, and Matthew Broderick plays himself, taking a Bueller-like day off away from the movie set and giving a shout-out to the Honda CR-V.

The two ads were highly rated by viewers, and Honda is off to a better start in 2012, breaking a string of eight consecutive monthly sales declines in the United States with an 8.8 per cent increase in January. But analysts do not foresee a smooth road back for the carmaker, whose market share dropped to 9 percent last year, the lowest level since 2005. Its share was 10.6 per cent in 2010.

Recently, Moody’s Investors Service cut Honda’s credit-rating outlook to negative from stable, citing “significant challenges” for Honda and doubts about how much market share the company can regain even after dealer inventories are back to full strength.

“Although Honda still has a good reputation, the competition in the auto market is getting tougher because its rivals have improved their product quality and brand acceptance in the last several years,” Tadashi Usui, a vice-president with Moody’s Investors Service in Tokyo, said in a report.

Honda executives, while projecting a 60 per cent drop in net profits for the fiscal year that ends in March, have expressed confidence that the company is on the brink of a significant rebound. One goal is a 25 per cent sales increase in the U.S. this year, helped by a redesigned CR-V crossover vehicle and several new models for its upscale Acura brand.

Honda unveiled the production versions of the Acuras, the RDX crossover and ILX compact car, this week at the Chicago auto show. They are part of a major push to expand Acura, whose sales last year suffered even more than the mainstream Honda brand.

Honda executives have said they hope to sell 180,000 Acuras this year, which would represent a 46 percent increase. Still, the NSX featured in the Super Bowl ad is not scheduled to go on sale for about three years, and with a price expected to top $100,000, it will not be a very high-volume car.

“In order to grow, the product offering that they have needs to be more compelling,” said an analyst. Honda was hit harder than other automakers by the earthquake and tsunami that devastated Japan last March. Its factories in Japan, North America and elsewhere were forced to stop or slow production for months because of parts shortages, and dealerships across the US sold out of some popular models as a result.

A rival, Nissan, even ran a commercial showing a loaded Nissan car carrier passing an idle Honda dealer in an empty lot. Honda was just beginning to recover from the tsunami when severe flooding in Thailand compounded the shortages. Executives say dealers should finally be back to normal inventory by the end of March, putting the company back on a level playing field with its rivals for the first time in nearly a year.

Honda’s inventories grew 38 per cent from December to January. “Last year we had a big handicap,” Tetsuo Iwamura, the chief executive of American Honda, said last month in Detroit, adding that 2012 “is the year that we will be able to show how Honda is competitive in the marketplace.”

Besides running plants on overtime to compensate for the lost production last year, Honda has worked to get vehicles to dealerships faster. Honda has said it might cost $650 million to rebuild a plant in Thailand that was underwater for several weeks last fall. The damage and lost production from the flooding and the Japanese tsunami combined with the high value of the yen to cut Honda’s third-quarter earnings by 41 per cent.

The company now expects to earn about 215 billion yen ($2.8 billion) in the current fiscal year, down from 534 billion ($6.9 billion) a year earlier. Its shares on the Tokyo Stock Exchange are down 20 per cent in the past year, though they have risen 20 per cent so far in 2012

For decades, Honda had been on a relentless march upward in the auto industry, steadily expanding its market share by churning out ever-larger quantities of cars consistently rated as the most fuel-efficient and reliable in the country. Though it has never been able to catch its rival, Toyota, in size, Honda always seemed equally invincible as the two companies wrested control of the US passenger-car market from Detroit.

After introducing itself to American shoppers in the 1970s with cars including the Civic, Honda turned its Accord into the top-selling Japanese car in each year from 1982 through 1996; the Accord was the first Japanese nameplate to be the country’s most popular car overall in 1989.

In the fall, Honda plans to bring out a redesigned version of the Accord, still its top-selling vehicle. Much of Honda’s ability to regain market share depends on the Accord’s being successful, and the stakes are even higher after the Civic elicited many negative reviews last year.

In addition, the Accord will face stiffer competition than in the past from other midsize sedans. Besides the Toyota Camry, whose sales have surged since it was redesigned last year, the Accord will be up against new versions of the Ford Fusion, which was a breakout hit at the auto show in Detroit last month, and Chevrolet Malibu.

Though Honda officials disputed the notion that the Civic is not competitive – and pointed out that its sales jumped 50 percent in January, making it the month’s top-selling compact – the carmaker is accelerating what is known as a “midcycle refresh” of the car.

Executives told dealers that the refreshed 2013 Civic will arrive around the same time as the Accord, a mere 18 months after its introduction. Automakers wait at least 3  years after introducing a model before making changes.