Honda Cars : Business Week; Can Honda Keep Defying Gravity? | 2013 New Honda Car Reviews 0

Yes, that is a Honda Accord upside down, 'defying gravity', it's the best I could find....

So far Japan's No. 2 is weathering the slump in auto sales better than most other automakers, including rivals Toyota and Nissan

In the auto industry, sometimes it pays to avoid the recent fashion. In the late 1990s, when the mantra of auto consultants was that all but the biggest car companies must merge or die, Honda (HMC) remained fiercely independent and flourished. Alliances, including the ill-fated coming together of Daimler (DAI), Chrysler, and Mitsubishi Motors, in most cases didn't pay off.

More recently, Honda largely sidestepped the stampede to sell Americans bigger and heavier SUVs and pickups. That has held the Tokyo-based company in good stead, as sales of gas guzzlers have collapsed and helped Honda do better than most this year. While that's not saying a lot, Honda's U.S. auto sales through November are down 5.4% to 1.34 million vehicles. That's not good, but it's better than the U.S. Big Three, which have seen sales decline by more than 20%. It's also better than Toyota (TM) and Nissan (NSANY), whose sales have slipped 13.4% and 9.4%, respectively.

Combined with growth in China and other emerging markets, that partly explains why in October Honda assembled 370,000 autos around the world, more than any month in its history. It also explains why among Japan's Big Three automakers Honda appears to be the most optimistic for the months ahead. Indeed, while Toyota and Nissan cut their annual net profit projections by 68% and 52%, respectively, at the end of the last quarter, Honda said its full-year earnings will only be 1% shy of its original target of $5.2 billion. "Honda's earnings will not remain unscathed, but we think it is very resilient in the context of the sector," says Takaki Nakanishi, an auto analyst at JPMorgan Chase (JPM) in Tokyo.

Challenges Ahead
Still, as the global economic picture has worsened, there have been signs in recent weeks that even Honda's optimism may be waning. In Japan, Honda is cutting 760 temporary jobs at four plants, including a motorcycle plant, due to falling demand in the U.S. In Britain, the company will shutter production at its Swindon plant for 50 days in early 2009 and is offering workers an undisclosed number of early retirement packages.

Meanwhile, reports in Japan say Honda will scale back investment in emerging markets. According to the Nihon Keizai newspaper, Honda will delay a plan to raise capacity at a plant in Turkey; a new plant in India, slated for 2010, will be delayed until 2011 or later. And Honda sales in the important U.S. market are now plummeting almost as quickly as rivals. After slipping 25% year-on-year in October, Honda's U.S. sales fell 31.6% last month, compared with an industry average of 36.7%. "The fact is that the market changes are coming so fast we can barely catch up," Koichi Kondo, senior managing director at Honda, told BusinessWeek in an interview at the company's Tokyo headquarters on Nov. 28, before the November figures were released. "It's going to be quite challenging for us to meet profit targets."

One problem is that emerging markets that had been compensating for slumping demand in Japan, Europe, and the U.S. are now slowing. In China (BusinessWeek.com, 11/21/08), for example, Honda is still on target to meet its annual target of selling 490,000 vehicles this year, a rise of 17%. But that growth, says Kondo, hides a recent slowdown. "We'll hit our targets, which were set at the start of the year, but since October it's been harsh," he says.

Then there's the Detroit bailout. With customers nervous about the economy and unwilling to spend on new vehicles, U.S. auto sales, with some exceptions, are now falling across the board. It's not just big SUVs and pickups. Grim news of General Motors (GM), Ford (F), and Chrysler needing a government-backed rescue hardly inspires confidence among would-be car buyers. Even worse for all automakers would be the impact of any of the Detroit carmakers going bust (BusinessWeek.com, 11/19/08). Any bankruptcy proceedings, Kondo says, would hurt suppliers, many of which are shared by domestic and transplant automakers, and the entire industry would suffer. "We want them to avoid Chapter 11 as much as possible," he says.

Yen Trouble
An added complication for Japanese automakers is the surging yen. Year-to-date the yen has risen 15% against the dollar. Against the euro it is up 25% and even more vs. many emerging-market currencies, making it harder for Japanese exporters to turn a profit on exports and reducing the value of profits made outside Japan when translated back into yen.

In Honda's favor, its levels of local production are relatively high. In North America, 78% of the vehicles it sells are built in the region, the highest ratio among Japan's Big Three. Analysts add that for the current quarter Honda has hedged much of the currency risk, which reduces its exposure to the yen's recent surge, albeit temporarily. Ultimately, a 1 yen appreciation of the Japanese currency against the dollar costs Honda about $200 million—the last thing an automaker needs at a time when global demand is slowing. "If the yen had been strengthening while volumes had been flying, there wouldn't be any great problems. It's the fact that everything is coming together all at once," says Andrew Phillips, an analyst at KBC Securities in Tokyo.

Still, for all the gloom, most analysts still maintain that Honda can do better than peers in the months ahead. Clearly, its problems are not close to those of U.S. rivals, which are trying to stare down bankruptcy. And even as sales fall in its key markets, Honda's focus on smaller cars and reputation for fuel economy and reliability should continue to aid sales during a recession. It's also telling that Honda isn't currently offering 0% financing in the U.S. to woo customers, unlike Toyota and Nissan. And yet Honda's sales are still falling less quickly.

Along with higher levels of local production, analysts also point to the effectiveness of Honda's strategy of focusing on big-selling global models. In the U.S., for instance, Honda sells 15 models in all. That's not even half the lineup of Toyota, which has 29 different models; Nissan, meanwhile, with smaller sales, offers 21. What's more, just four "global models"—the Fit, Civic, Accord, and CR-V—account for 75% of Honda's total sales, with each selling more than 500,000 a year. That means that while Honda has less buying power than larger carmakers, it can still eke out scale efficiencies. "If we really want to have efficient production, it's better to have more of these global models," Kondo says. The worry for other automakers is that if Honda struggles, it likely will be even worse for them.

Source;
http://www.businessweek.com/globalbiz/content/dec2008/gb2008123_306718.htm