Barron's on Honda: BUY!
Barron‘s, the weekend edition from those warm and fuzzy people at the Wall Street Journal, is little known outside the financial world, and read by everyone inside it. Today Barron’s is hyping Honda stock, big time. Writer Jay Palmer loves him some Honda. He cites the 200 FCX Clarity fuel cell cars motoring around Santa Monica as clear evidence of technology leadership. Never mind that the hydrogen economy is about as likely as the Moller Skycar. More urgently, “amid a savage sales slump that has led the Detroit Three to plead for government aid, threatens to bankrupt General Motors and has battered most European and Asian vehicle makers, the Japanese car manufacturer is a standout.” Honda, along only with Subaru, managed to keep unit sales above 2007 levels throughout the first nine months of 2008. “Recently, however, the downturn’s severity has taken a toll on Honda. Its U.S. sales plunged 25% in October, but that still was better than the overall industry’s 32% slide. Honda now expects its 2008 U.S. sales to be off 2.4%, the first yearly decline in 15 years. But the company remains confident; it will open a new plant this month in Greensburg, Ind., that soon will be turning out 30,000 vehicles a month. And it has opted not to follow Toyota, Nissan and others in offering 0% financing.” That last bit is interesting. Honda isn’t following Toyota’s lead into the Saved by Zero swamp.
As an engineer I’ve been a vocal critic of the MBA/Wall Street way of running businesses, it surprised me to see my view echoed in to pages of Barron’s. To wit: “‘Honda is first and foremost an engineering company, with a philosophy of efficiency that is driven to get more out of less,’ says John Casesa, a former Wall Street auto analyst turned managing partner of New York’s Casesa Strategic Advisors. ‘The people who run the company are the people who design, manufacture and sell the cars, people who have a passion for the business. Honda is the best-positioned of any car maker to ride out this storm, and the best-positioned for a recovery. The stock is as close to being a blue chip as exists in the auto industry today.'”
Wow, a Wall Street guy singing the praises of an engineering mindset! Author Palmer also likes the fact that 30% of Honda’s operating profits come from motorcycles, lawn equipment and marine engines. But cars are still king, and he heaps praise on the wave of new product rollouts including the Hit Fit, Prius-fighting Insight and a rolling thunder of refreshes rolling through the line. Ah, never mind how many of the recently refreshed vehicles have disappointed. Also a bit strange is that he says nothing about weak offerings like the RL and RDX and still thinks big thoughts for the rumored diesel Odyssey. So forget Obama, Jay is in the tank for Honda: “Eventually, the economy and financial markets will heal. And Honda, with its fuel-thrifty cars, flexible assembly plants and advanced technology, will emerge as one of the auto industry’s few big winners.”
Eric_Stepans on Nov 16, 2008
Full disclosure: I am currently employed by Honda as a contractor (doing technical writing). I think Honda's greatest strength is the corporate culture. They are conservative (in the sense of prudent and cautious) in their decisions. They don't jump on the latest fads. It took them years to produce a minivan, an SUV (rebadged Isuzus notwithstanding), or even a V6 Accord. Yet, when they finally did enter those markets, their products were among the best-in-class. They let other companies work the bugs out of leading-edge technologies (6+ speed transmissions, direct fuel injection, keyless start, etc.) before adopting them. But they are quick to recognize elegant solutions (VTEC, Integrated Motor Assist, double-wishbone suspension, etc.) and bring them to market at an affordable price. Furthermore, Honda is accustomed to working in a capital-poor environment. The other Japanese automakers (and their keiretsu) tried to squash Honda in its early days. The memory of trying to build the business with every bank saying "No" is ingrained in Honda's management style. I don't know enough about Honda's overall finances, nor just how large our current economic crises will get, to assert Honda is a guaranteed 'winner'. But Honda is likelier than most to come through in good shape.
Martin Schwoerer on Nov 16, 2008
Honda's a good company, that's for sure. The only thing I can add to what has been written above is that Honda is leading in advanced pedestrian protection technology. But is Honda a good stock to buy at the current price? Sadly, the linked Barron's article is not open to non-subscribers, so I cannot check whether the article's reasoning is at all compelling. (Apart from the part about Honda having great product, which by no means is a reason to buy a stock). Also, I have no idea whether the article provides any financial data as to whether the price is right. So, I have to say I am disappointed.
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