Honda Misfiring in U.S. Market
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If investors were asked which Japanese car company was in the deepest trouble, most would say Toyota Motor ADR (NYSE: TM). That is thanks to the large number of recalls it has been forced to undertake for its vehicles due to safety concerns.
But the correct answer, surprisingly, is a company that has been here in the United States, its largest market, since 1959 – Honda Motor ADR (NYSE: HMC).
It was an absolutely dreadful year for Honda in 2011. It was hit by the Japanese earthquake and tsunami, plummeting sales in the United States and Europe, and poor reviews for its vehicles.
Until very recently Honda had an impeccable reputation for making very well-built vehicles at a reasonable price and which had high resale values. Americans loved the company's Accord and Civic models, which were best sellers for decades. But apparently no longer.
Recent data showed that the American car market had a solid year in 2011, with growth in the 10 percent range. But Honda's sales dropped by 7% last year, the biggest decline shown by any of the automakers.
It was even worse for Honda in Europe. Its sales there, through November, plunged by 19%, the most for any brand besides Mazda.
Part of the problem was not of Honda's doing. The company had to cut its production because of supply problems twice due the Japanese disasters and massive flooding in Thailand. Honda was also hurt by the surging yen.
But part of its problem is of Honda's own making.
Its management seems to be too conservative, afraid to take chances. While other automakers were doling out incentives in the depths of the recession, Honda stood buy and offered no incentives.
The company seems to have lost its drive for designing cars too. One industry consultant, Joe Phillippi, says Honda has lost its “styling mojo.” Last spring Car and Driver magazine ripped the latest Civic model in its review, saying there were absolutely no improvements made from its predecessor.
This has shown up in sales of the Civic, Honda's best-selling global brand. In December, sales in the U.S. were down more than 25% from December 2010.
It's not much better in the truck segment where sales of its Ridgeline model plunged by 40% in 2011, selling less than 10,000 in total. And Honda does not even have a model in the crossover vehicle segment that can compete with the Chevy Traverse.
Honda does hope to have a bounceback year in 2012. The company is rebuilding its inventory from the disaster-related lows and it expects vehicle inventories to be back to normal in the first quarter. The company is targeting a 25% jump in vehicle sales this year to 1.43 million.
Honda is unlikely to succeed in regaining its former glory in the U.S. market until its management becomes much more aggressive.
Investors should avoid Honda until there is a change in management strategy or a change in management altogether.
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