Why Honda (HMC) Could Lose More Ground in North America
PUBLISHED ON: Aug 12, 2015
HMC). Last year, North America accounted for slightly over 51% of Honda's auto sales. More importantly, Honda's revenue in this end-market increased close to 21% year-over-year. However, Honda has turned in a mixed performance in North America in the first half of 2015, especially the U.S.
A mixed performance so far
Honda's cars sales have taken a beating in 2015 in the U.S.
However, Honda's trucks have turned in a positive performance, registering sales growth of 9.8% over last year's first half. This is, howerver, way below as compared to growth reported by peers such as General Motors (GM) (15.8%) and Toyota (TM) (15%) in their truck and SUV segment. Moreover, Honda's growth in the truck and SUV segment has lagged the overall U.S. truck industry's growth of 10.3% in the first half of the year.
Honda sells its vehicles under two divisions in the U.S.: The Honda division and the Acura Division. In the first six months of 2015, the Honda division's growth has been flat, while the Acura division has grown by 11.7%. Thus, all the growth that Honda has seen in the U.S. this year is being driven by Acura.
In Canada too, Acura has remained the key growth driver for Honda. The Acura Division reported June sales of 1,860 units, up 28% over last year, while the Honda Automobile Division reported June sales of 14,679 units, which was not much different from last June. The light trucks and SUVs, such as HR-V, CR-V and Pilot led sales in Canada, in line with the prevailing industry trend.
Given its mixed performance so far this year in the U.S., it is not surprising to see that Honda has lost market share. In fact, Honda has lost 30 basis points of market share this year to hold 8.8% of the automobile market. This is very close to the next best player Nissan, which sits at number 6 with 8.6%.
Thus, Honda needs to step up its game in the U.S. market. As a result, the company is planning to invest $85 million in its assembly plant in East Liberty, Ohio, in order to boost production of its Acura MDX — the brand's best-selling model. Sales of the model accounted for 39% of Acura's total U.S. sales last year.
Additionally, this investment will increase the company's ability to sell more trucks and crossovers in North America. For instance, the all-new 2016 Honda Pilot, which is scheduled to be launched this summer, will also be produced here. Since the plant will then be able to produce both the models, it will increase Honda's manufacturing flexibility in North America.
Honda's previous CEO had set a target of annual sales of 6 million vehicles by the year ending in March 2017. This target looked quite overambitious at that time, and now looks near impossible. In an effort to meet production deadlines, Honda was forced to divert its focus away from developing new technologies. But, the new CEO, who took over in June 2015, has abandoned the 2017 sales target saying, "I want to prioritize the development of Honda-like products rather than expanding sales volume."
Honda's new CEO, Mr. Hachigo, is also keen to address the problem of excess capacity worldwide. Toward this end, Honda will modify its policy of majority local production to shipping more cars between regions. This global-local (glocal) strategy is typical of global corporations that modify products and services to suit local differences in customer taste, culture, pricing and/or regulations.
As a result, it is possible that Honda will be able to reduce costs as it won't have to build new plants to address the North American market. Instead, the company can adjust its products and import them into the U.S. Further, Honda is planning to streamline product offerings over the next several years. By doing this, Honda expects to secure more time required by its overworked engineers for new product development.
Honda's number 5 position in the U.S. is quite justified by the relatively smaller amounts of US specific efforts that it makes. Planning a line-up of sedans while the SUV and crossover segments are booming is one example. Further, the ever expanding recalls due to technical problems do no good to the company's image. Hence, it might be difficult for Honda to make a comeback in the U.S. market.
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