Though the US auto market is up 11 percent this year, Honda’s sales are up only 3.6 percent compared to last year’s weak performance. That means the Motor Company isn’t even keeping up with the growth rates of such maligned brands as Lincoln (+7.4%), Chrysler (+16%) and Mazda (+9.8%). But Team Honda isn’t sweating the details. After all, the Civic and CR-V are nearing the end of their model cycles, while the Accord is a year and a half from its replacement. And, as Honda USA’s Executive VP John Mendel tells Automotive News [sub], at Honda
no one talks about share. Chasing share gets you into bad habits. We set a business plan to sell a certain number of cars. We don’t set the plan based on an assumed share. We plan to grow 2 or 3 percent in volume in good times, and bad times. And there are times we’ll give share back.
Which is the kind of thing you’d expect to hear from an exec in Mendel’s situation… unfortunately, there are troubling indicators on the horizon that could cause Honda’s “bad times” to go on longer than anyone expected.
Where to begin? For one, competition from Hyundai is a big problem, giving lie to our claim
that Hyundai had replaced Honda as the preeminent mass-market motor technology leader. According to the brand consideration measurers at Compete, Hyundai began attracting more consideration than Honda last Summer, even though Honda’s sales are about double Hyundais. Whether there’s a causal link between the loss of technological leadership and the shift in consideration patterns isn’t clear, but it’s certainly not a good indicator for Honda.
Of course, Honda’s defense is that new products are coming… unfortunately, Honda’s recently-launched vehicles have hardly set the world on fire. The Crosstour has been a a minor disaster, first causing a Facebook flap, then settling into a mediocre 2,350-odd sales per month average. The Insight has fared even worse, falling well short of its Prius-competitor pretensions, as it moved a mere 19k units and change so far this year (Honda had planned on 60k-80k). And don’t get us started on the weak response to Honda’s CR-Z hybrid coupe. With the Fit, Civic and Accord all down compared to last year, Honda’s minimal growth is largely being fueled by mediocre-selling new models.
One bright spot in the mess: large vehicles. Pilot and Odyssey are growing healthily, and over at Acura, the trucks are literally carrying the weight. MDX and RDX are up 46% and 51% respectively, while Acura’s cars (including the recently-refreshed TL and TSX) are stuck in neutral, improving only by single digits. Indeed, Honda sees trucks as the way out of its short-term plight, and it increased truck production back in August… although even that was on the late side. Says Mendel:
We had the capacity. We saw a blip in the truck market, but we wanted to make sure it was sustainable, so we were six months late
And where there are trucks being sold, there are incentives: though still below industry averages (thanks to Detroit), Honda’s incentives are at an all-time high. And underlying all this chaos is a growing problem with inventory allocation that’s starting to grate on Honda’s dealers.
Honda dealers are having trouble providing shoppers with the vehicles they want. Honda’s inventory and allocation system was designed when Honda had far fewer nameplates and trim levels, and the model proliferation has quickly outstripped the system’s ability to let dealers order the exact vehicles they want…
Dealers say they could hit sales targets if Honda would fix its inventory and allocation system. The system, called MOVE (for market-oriented vehicle environment) was rolled out in 2001. Honda has promised an update in 12 to 18 months.
Oregon dealer Theis, a 25-year Honda veteran, said increasingly complicated model proliferation has taxed the current MOVE system. It’s about more than just days’ supply on a dealer’s lot going toward turn-and-earn; it determines what vehicles can be ordered at a particular time.
Large and small dealers agree that Honda’s inventory, allocation and manufacturing systems are not properly aligned, requiring a combination of mathematics and luck to get the right cars in stock.
The new Odyssey is an example of what frustrates dealers. With pricey options such as rear-seat video, power tailgate and leather seats, the new van has many more trim levels and features. Dealers believe they are better judges of local tastes than are factory reps.
“Right now we can choose within certain build constraints each month, but that can still be reconfigured by the factory,” said Theis. “Dealers say if they could get the cars they want, and get more local control, they could grow.”
So, in a year and a half, Honda could have a new Civic, a new CR-V, a new Accord and a new, improved inventory management system… but that’s a huge amount of problems to fix in 18 months. Meanwhile, with GM, Hyundai, Subaru and Ford roaring up the sales charts, nobody is sitting around waiting for Honda to snap out of its funk. Meanwhile, Honda’s got just a few strengths to keep it going: its inventories remain low, and its loyalty remains high. But if it doesn’t start fixing everything else, Honda could just find itself out of favor with consumers, dependent on trucks, and unable to deliver the cars consumers want to where they’re in demand. Does this sound anything like the Honda Americans have grown to love?