With Acura, Honda takes on luxury competition
Second distribution channel lays groundwork for other Japanese luxury brands
U.S. chief Tom Elliott pitched Acura to Honda bosses in Japan.
At one memorable meeting in Japan, Elliott, then vice president of automotive operations at American Honda Motor Co., gave a two-hour presentation to Honda engineers and board members. Yoshihide Munekuni, the future president of American Honda, translated.
"We felt that just adding model lines to the Honda franchise would not be the key to large growth," Elliott said. "Plus, we didn't think the public would go for higher-priced Hondas. We were talking about $20,000 at that time."
The solution approved by the Honda board: Acura. It was a first for a Japanese automaker: a luxury brand with a separate distribution channel.
Upon its launch in March 1986, Acura put the Detroit 3 on notice that American Honda could compete vigorously in many segments, not just in small cars. But Acura also laid the groundwork for other Japanese luxury brands. In fact, Toyota's Lexus has been so successful that it eventually overshadowed Acura.
But for Elliott, who retired in 2005 after 31 years with Honda, the board's approval was a triumph.
Birth of a brand
In the early 1980s, Honda was already selling the Integra, an upscale sporty car, in Japan. A luxury model code-named the HX — which became the Legend — was on the drawing board. They became the first two Acura models.
Honda's board thought a separate brand "made sense," Elliott said. "The only thing they were really concerned about was the new name."
Enter NameLab Inc., a startup company in San Francisco that created brand names. Ira Bachrach, founder of NameLab, said Honda wanted the name for the new brand to evoke German engineering.
"We took engineering apart into its component ideas, which were mathematics, precision, metallurgy," he said. Acura's Latin root can mean "precise."
The press had been told that Honda was forming a second distribution channel. Armed with the Acura name, the company could start marketing the brand.
People were "shocked" that Honda was coming out with cars that would cost more than $20,000 and have V-6 engines, said Kurt Antonius, an American Honda spokesman.
Tim Dunne, now director of Asia-Pacific market intelligence at J.D. Power and Associates, remembers seeing the first Legend in his garage. His father, Jim Dunne, who was Detroit automotive editor of Popular Mechanics, tested new cars before they were released.
Said Tim Dunne: "I was stunned by the quality of the fit and finish."
Not just any Honda dealer got an Acura franchise, said Dave Power, founder of J.D. Power and Associates. He was already doing customer satisfaction surveys at Honda dealerships. The original 60 Acura dealers were selected from the high scorers, he said.
Power snagged people at shopping centers to evaluate the car. They didn't know the Legend was made by Honda, Power said.
"We were trying to evaluate the acceptance of the product itself," he said. "The response was really good."
Clark Richardson, owner of Goodson Acura in Irving, Texas, was dealer No. 10. The Legend, he said, was a home run.
Curiosity helped: Acura was the first Japanese brand to enter the luxury market.
Sales were good. "The challenge was there was no service business!" Richardson said.
Mark Hennigan, general manager of Gunn Honda in San Antonio, managed an Acura dealership for a decade. He said the Legend was a success from day one until the name was discontinued in 1995.
"There are customers that still want the Legend to come back," Hennigan said. "The Legend made Acura."
Acura customers also loved Acura dealerships. In its first four years, the brand was tops in J.D. Power's customer satisfaction surveys. With Acura, Honda succeeded in moving Honda owners upscale, said Finbarr O'Neill, president of J.D. Power and Associates. "Acura continues to impress year after year," he said.
Nonetheless, Acura never has truly joined the ranks of Tier 1 brands such as Mercedes-Benz and Lexus. Acura models have lacked the power and glamour of the top luxury vehicles.
At a dealers meeting in April 2008, Acura executives said the brand was ready to make that leap. They said Acura models would be upgraded.
"I believe we have a strong commitment from Japan to take Acura where it needs to be," said Richardson of Goodson Acura. "I am bullish on the future."