Why Honda is growing as Detroit falls behind

No. 2 Japanese automaker opted to focus on small, popular cars - not gas guzzlers

Thursday, July 3, 2008

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(07-03) 04:00 PST 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, focusing instead 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 declines in sales 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; 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, author of a widely respected annual report on auto factory productivity.

Honda's top U.S. executive said Wednesday the company is well-positioned for $4 per gallon gasoline because it always has emphasized small, fuel-efficient vehicles.

"We're not geniuses," said John Mendel, the company's U.S. executive vice president. "We're consistent."

Industry analysts say Honda has avoided 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 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."

The Detroit Three, by comparison, has too few small-car models and each has been caught with well over half its factories building trucks at a time when market shares have 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 the three companies would like to 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.

Faced with dwindling cash reserves, the three could wind up with truck factories idle while they max out the capacity at small-car plants, Gardner said.

Even a short-term solution - somehow cranking up output at existing car plants - isn't easy either.

Ford, 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.

This article appeared on page C - 3 of the San Francisco Chronicle



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