E-mail          Print          Text
Honda's line of fuel-efficient cars helps avoids sales crisis
Published: 07/03/08   1:00 am   |   Updated: 07/03/08   6:47 am
Comments (0)

DETROIT – When consumers astonished the U.S. auto industry two months ago by quickly shunning trucks and going for gas mileage, the biggest beneficiary ended up being Honda Motor Co.

The No. 2 Japanese automaker, with the most fuel-efficient model lineup in the industry, never put both feet into the U.S. truck market, instead focusing on slow-but-steady growth with popular cars such as the Civic and the Accord.

It paid off in June. While its major competitors reported double-digit sales declines and burgeoning truck and sport utility vehicle inventories, Honda had a modest 1 percent sales increase. Its car sales were up almost 20 percent from the same month last year, and the Civic and the Accord were among the industry’s top sellers.

“They are better positioned than anybody in terms of the products they have for this kind of environment,” said Ron Harbour, a partner with the Oliver Wyman Group and author of a widely respected annual report on auto factory productivity.

But while Honda might look like it can peer into the future, the company’s top U.S. executive says it’s well-positioned for $4-a-gallon gasoline because it always has emphasized small, fuel-efficient vehicles.

“We’re not geniuses,” John Mendel, the company’s U.S. executive vice president, said Wednesday. “We’re consistent.”

Industry analysts say Honda has managed to avoid the sales crisis that has hit the Detroit Three and even Toyota Motor Corp. for two reasons. Although it makes SUVs and a small pickup, it has a strong lineup of cars that get good gas mileage. And its factories are so flexible that it can quickly make more of the vehicles that are in demand.

“We can reprogram it to make it build more Civics,” Mendel said. “That’s by far one of our competitive advantages.”

On the opposite end of the spectrum are Ford, Chrysler and General Motors, most with too few small-car models and each caught with well over half their factories building trucks at a time when the market has shifted to 56 percent cars and 44 percent trucks. GM and Chrysler have announced plans to close truck and minivan factories, and Ford is expected to announce cutbacks later this month.

Executives at all three wish they could flip a switch and convert factories from cars to trucks, but Greg Gardner, an analyst with the Oliver Wyman Group, says that’s difficult and costly because cars require different tooling.

“In a perfect world, this would be great,” says Erich Merkle, vice president of auto industry forecasting for the consulting company IRN Inc. in Grand Rapids, Mich. “Even Honda can’t do that.”

To go from trucks to cars, an automaker would have to replace the factory’s machines for millions of dollars at a time when losses are mounting and they’re burning up cash, Gardner said.

“Now we’re in a situation where because of the cash burn rate, those kind of wholesale investments may be prohibitively expensive,” Gardner said.

As a result, the Detroit Three could wind up with idle truck factories while they max out capacity at small-car plants, he said.

Ford Motor Co., which couldn’t produce enough Focus compacts last month, is trying to add a third shift so it can run the lone factory that makes them around the clock. But logistics stand in the way because some parts of the factory can’t move as quickly as others.

“In any plant you always have one area that’s the bottleneck,” Harbour said. “You can only run as fast as that bottleneck.”

Relieving the bottleneck might take additional tooling, and that also takes time and money, Harbour said.

“It could take a year or two to get it all done and get it all cranked up,” he said.

Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
 

Comments

 
Win Mariners Tickets
McClatchy's Newspapers Commemorative Book
Promo Graphic Subscribe Button
Front page PDF