By on February 29, 2012

We have been saying for quite a while that Honda looks a bit pale around the nose. The Nikkei [sub] agrees. According to the Tokyo business paper, Honda blew it by relying too much on the U.S. market, by ignoring the emerging markets, and by disregarding the fact that Japan has a love affair with 0.6 liter midget-mobiles, a.k.a. kei cars. All of this has to change in a hurry, and Honda’s turn-around hinges on the success of a new kei car, the N Box. Says The Nikkei:

“While it is true that last year’s quake and the floods in Thailand dealt a blow, the carmaker has deeper structural problems. Honda let its success in selling expensive cars in the North American market go to its head, failing to notice changes in the global auto market. As other major carmakers shifted their strategic focus to emerging markets after the 2008 financial crisis, Honda saw its competitiveness wane and it was overtaken by South Korean rival Hyundai.”

“This is also apparent in the minicar segment. As it focused resources on its North American operations, Honda’s minicar engineering team was stretched too thin. Now minicars account for roughly 40% of the domestic market and Honda has taken a beating in the segment, tumbling to fourth place behind Nissan.”

On the kei car front, Honda’s counter attack looks promising. End of last year, Honda introduced the N Box, and Honda still can’t make it as fast as it sells. There is a two month wait for an N Box.

For the car, Honda revamped its production process for the first time in 10 years. Instead of the traditional monocoque method, an inner frame is built, and outer panels are welded on afterwards. This new process had teething problems, which delayed delivery. Now, Honda says it has mastered the production of N Boxes.

Mastering success in emerging markets will take a little longer.

 

 

 

Get the latest TTAC e-Newsletter!

21 Comments on “Nikkei: Honda’s Future Hinges On A Kei Car...”


  • avatar
    SherbornSean

    The Nikkei really hit the nail on the head criticizing Honda for its focus on the profitable North American market, rather than the highly competitive, low margin Kei car market. This criticism is as insightful as the common refrain around the Accord being too big (it’s actually the lightest car in its class) and that Honda doesn’t have enough fleet sales.

    Honda has its flaws — engineering teams were stretched thin in an attempt to address too many product nishes; the design language at Acura just hasn’t worked; and the process (false starts) and output (cheap interior) for developing the new Civic have been lackluster. But criticizing Honda for focusing energy on where they make money is ridiculous.

    Let’s keep in mind: Honda was the only mainstream automaker that was profitable every year of “carcopolous.”

    • 0 avatar
      mike978

      “Let’s keep in mind: Honda was the only mainstream automaker that was profitable every year of “carcopolous.”

      From a quick google search it seems that VW and Ford made money in those years (2008 onwards for VW and 2009 onwards for Ford).

      http://www.volkswagenag.com/content/vwcorp/info_center/en/news/2009/07/PM_Half-Year.html

      http://articles.latimes.com/2010/jan/29/business/la-fi-ford-profit29-2010jan29

      “But criticizing Honda for focusing energy on where they make money is ridiculous.” They should have diversified. Just like BMW, Toyota and GM (as well as many other companies) made good money in the US and Western markets yet still found time and money to expand in China, Russia, rest of Asia and Latin America. What you are suggesting is like Kodak – why should they diversify since film was profitable until it wasn`t!

      • 0 avatar
        SherbornSean

        It is common knowledge that Ford almost went under – the only thing that saved them was that they borrowed $20B the year before the bottom hell out of the market. Ford is doing well now, mostly because they focus on the US market. Not kei cars, not developing markets.

        The differences between Kodak and Honda are myriad, but the most important being that Honda fcouses on markets that are stable or expanding, whereas Kodak’s was rapidly declining.

        Keep that in mind next time you get in your car to drop off your film for developing. Oh, wait.

      • 0 avatar
        mike978

        Try not to take this news too seriously.
        Honda is profitable and make some good cars. However your argument that they couldn`t be expected to focus on their largest most profitable market (the US) whilst also expand in other areas (China, rest of Asia, Russia etc) is just wrong. Especially when many other companies could do both. Maybe Honda don`t have the bandwidth to do both, I don`t know but you cannot dispute that it is possible to do both. I also note you didn`t refute that from my original post.

        The point about Ford (and VW – again not refuted) was that you were wrong to assert Honda was the only “mainstream automaker” to be profitable during the recent financial crisis. You are entitled to your own opinions but not your own facts.

        As for Kodak, it was a playful comment with some topical relevance since they have been in the news recently. Of course car making and film making are different (doh!) but a well established company strong in a market can fall from grace. GM is a great example of that too. Honda is strong in a declining market (Japan) so the example was not so far out.

        The next item you need to think about is why has Honda been unable to establish a true luxury brand when Toyota and Nissan have (or are in the process of) done that on a global scale with Lexus and Infiniti. Acura is not sold in Europe and in the US they use at least one rebadged (in the old GM sense) European Honda model. You don`t see Lexus or Infiniti do that.

        http://www.acura.com/PhotoGallery.aspx?model=TSX&modelYear=2012&context=photos-videos#/image2
        http://www.honda.co.uk/cars/accordsaloon/#gallery

      • 0 avatar
        Pch101

        “your argument that they couldn`t be expected to focus on their largest most profitable market (the US) whilst also expand in other areas (China, rest of Asia, Russia etc) is just wrong”

        Honda’s production in North America and its production in Asia outside of Japan are comparable.

        During 2010, Honda built 35% of its cars in North America and 29% in Asia outside of Japan. During 2011, 38% came from North America and 31% were built in Asia outside of Japan. Production in Japan was below both North America and the rest of Asia.

        http://world.honda.com/investors/financial_data/monthly/data/previous_data_20120227_E.xls

      • 0 avatar
        mike978

        PCH – thanks for the data. Note I was not the one who said that “But criticizing Honda for focusing energy on where they make money is ridiculous” which I took to mean SherbornSean thought it unreasonable for Honda to do as other manufacturers has done and expand in other markets.

        I would hope they produce a sizable number of cars in Asia (excluding Japan) since that market is much larger than the US market.

        Honda can, if they put their energies to it, rectify the deficiencies in Kei cars (seems to be underway), emerging markets and a lack of a global luxury brand. Other manufacturers are already there (Toyota, VW, GM et al). Honda possess engineering excellence, they just need to execute.

      • 0 avatar
        Pch101

        “Note I was not the one who said that “But criticizing Honda for focusing energy on where they make money is ridiculous” which I took to mean SherbornSean thought it unreasonable for Honda to do as other manufacturers has done and expand in other markets.”

        What you did say was this: “They (Honda) should have diversified. Just like BMW, Toyota and GM (as well as many other companies) made good money in the US and Western markets yet still found time and money to expand in China, Russia, rest of Asia and Latin America.”

        You do realize that your statement is incorrect, don’t you? Contrary to your assertion, Honda did diversify throughout Asia, particularly in the ASEAN countries outside of China.

      • 0 avatar
        mike978

        Thanks PCH. I will confirm I made a mistake in thinking Honda had diversified very little compared to them having diversified somewhat. I was laboring under the same mistake as Sherborn. I took his comment (and the information in this article) to mean that Honda has not diversified as much as other companies.
        For example “According to the Tokyo business paper, Honda blew it by relying too much on the U.S. market, by ignoring the emerging markets, and by disregarding the fact that Japan has a love affair with 0.6 liter midget-mobiles, a.k.a. kei cars.”

        As you know it isn’t a binary choice of not diversifying or diversifying. It is a continuum so I would still hold to the view that they haven`t diversified enough. The same can be said for other companies like PSA.

        As for “Contrary to your assertion, Honda did diversify throughout Asia, particularly in the ASEAN countries outside of China.” Maybe I should have added “enough” or do you think the Nikkei have it wrong? I am not an expert on Honda so take what I read from reputable sources (BS and Nikkei count as two). Please enlighten me and others.

      • 0 avatar
        CJinSD

        If Ford didn’t make money in 2008, then they were not profitable every year of the carpocolous. Duh.

      • 0 avatar
        SherbornSean

        I stand corrected on VW – they did squeak out a profit of less than 1% of revenues in 2009. I still believe it is a major accomplishment for a mainstream carmaker to have made money every year in the past 5, and apparently 2 did so.

        In terms of diversifying, let’s keep in mind Honda’s relative size vs. VW, Toyota and GM — they are a lot smaller than their competitors, and lack the management and financial resources to go after every market.

        Personally, if I had the choice between focusing on getting the US-market focused MDX right and boosting sales in Cambodia, I’d focus on the high margin $50K vehicle.

        Now can we get back to the primary focus of TTAC — bashing Obama?

      • 0 avatar
        mike978

        CJ – I wondered how long you could resist commenting on a Honda article (without even refuting the “negative” news). I thought from your perspective all that was bad with the world started in January 2009 when Obama was inaugurated. So the carpocolous would be 2009 onwards and by that metric Ford made (along with VW, BMW and Toyota assuming 2011 isn`t included in your definition) profit!!
        Sherborn – it isn`t an either/or situation. They can and should be focusing on the $50K car AND their future growth markets. Others can do it. That was the point I was trying to get across in this thread. Apparently without too much success.

      • 0 avatar
        Pch101

        “Maybe I should have added “enough” or do you think the Nikkei have it wrong? I am not an expert on Honda so take what I read from reputable sources (BS and Nikkei count as two).”

        Reviewing the financial statements, sales and production figures, and other data can be enlightening.

        Yes, I think that they are missing the target. Honda has two basic problems: It is too small, and it lacks a credible luxury brand that it could use to improve its margins. Honda should be focusing on improving its ARPU, and the most obvious way to do that is to create cars that can credibly compete in the near luxury and luxury segments.

        Japan is not a very exciting car market. I don’t know much about the kei car market, but I would assume that its value is more for pulling entry level buyers into the brand that it is for generating operating profit. But regardless, Japan’s long term trajectory is downward, so I can’t imagine that the kei car is going to be saving much of anything.

    • 0 avatar

      But Accord is, in fact, too big. Even if it were made from styrofoam, it would still be too big. I took a drive in one and quickly asked to show me Fit.

  • avatar
    Hank

    Re: Emerging markets

    I know that on a recent trip to Cambodia one thing that stood out was the absolute Goliath that Honda is in the moto market, but how utterly absent they are in the car market. You’d think they would have taken advantage of the rep with moto riders as they move up to autos and offered them something competitive, but no.

    • 0 avatar
      stuntmonkey

      That’s because they abandoned the ‘You meet the nicest people on a Honda” ethos of the supercub. That ethos was alive in the earlier Civics and the 90′s Honday Today. And it is a valid criticism when a company tries to cherry pick the low hanging fruit for too long… the picnic eventually ends and its often the failing of sales-driven decision making that makes company not anticipate for it.

  • avatar
    MrWhopee

    I don’t know about betting Honda’s future on a car that is very market specific, and in one country only, which just happen to be in economic downturn with little if any auto sales growth.

    • 0 avatar
      supersleuth

      Indeed, the Kei car market is SO “important” that Subaru is going to abandon it.

      Good to know that it’s not just American business pundits that are not too bright.

  • avatar
    Magnusmaster

    I don’t know about other emerging markets, but here in Argentina Honda’s management is a disaster. Ridiculous overpricing of all models, setting prices in dollars for no reason, poor lineup and awful customer service made Honda fall from an medium-sized automaker with good reputation to selling less than Mitsubishi in just two years. The new plant they opened in Argentina makes so few cars they had to resort to assemble obsolete motorcycles, which they still manage to sell.
    In Brazil the situation is a bit better, but they will get their asses kicked by Hyundai if they don’t do something fast.

  • avatar
    righteousball

    All fine and dandy, except did you know how thin a keicar’s profit margin is? It’s not going to save anyone. It’s just too big a category in Japan for Honda to ignore. Nikkei is just being TMZ-liberal with the headline if you look at it that way. :P

    I’m in parts of Asia and I see the same issue the Argentine? poster above is seeing with Honda. I believe Honda is no longer a very well-managed company anymore, anywhere, and after years of excess it’s beginning to catch up with them.

  • avatar
    nvdw

    “Now minicars account for roughly 40% of the domestic market and Honda has taken a beating in the segment, tumbling to fourth place behind Nissan.”

    Come to think of it, Nissan sells badge engineered kei cars built by Suzuki and Mitsubishi, and still manages to outsell Honda.

    This N Box is quite interesting as it is also a platform on which Honda can build any variation on the keicar theme at less expense.

  • avatar

    BTW, you know who does well in kei cars? Mitsubishi! No, seriously.


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Authors

  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Matthias Gasnier, Australia
  • Tycho de Feyter, China
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Faisal Ali Khan, India