American Honda Motor Co. has taken heat for failing to gain market share during arch-rival Toyota's year of turmoil. Indeed, the Honda brand has been losing share, while Ford, Chevrolet, Nissan and Hyundai have made gains in 2010.
But John Mendel, American Honda's executive vice president, says all is going according to plan. Mendel says retail share is holding steady and the automaker's basic principles remain in place: a conservative approach to incentives, firm residual values and no fleet sales to pad their numbers.
Mendel spoke with West Coast Editor Mark Rechtin.
Why hasn't Honda taken advantage of Toyota's troubles this year?
We look at share as a result of what happens in the marketplace. We set a plan, and we sell to that plan. Spikes in share tend to correlate to events where people count on Honda. So in May 2008, fuel prices spiked to $5 a gallon, and we went from selling [about 28,000 Civics a month through April to more than 53,000 in May]. People ran to Honda because we're about fuel economy.
Then, in the first quarter of 2009, there was lots of news about who was going to go bankrupt and whom you could count on. People again voted on the value proposition that Honda brought to market. People found Honda because we're consistent. We're a safe harbor.
This year there have been some ups and downs in share, and some erosion. But last year the industry had no fleet business at all. Used-car prices were depressed. It was the first time I ever found rentals with 50,000 miles.
This year the Detroit 3 and others openly said this was going to be a huge fleet quarter. But we don't sell fleet. Our retail share is up vs. last year. That's where we compete. We grow 2 to 3 percent in up and down times. We take a longer view than what happened last month.
Honda Motor CEO Takanobu Ito recently said American Honda has grown "complacent." Do you agree?
Are we complacent? In sports, when you're ahead in a game, the halftime discussion in the locker room is never about, "Just go out and don't lose." It's always about never letting your guard down. I took Ito-san's comments very much around what we at Honda call "the warrior spirit." It's about always being vigilant and never being complacent. If you look at our product line, we have never backed off the throttle. This year we have the Odyssey, CR-Z and Crosstour. Next year is the CR-V and Civic.
Ito also said he was unimpressed with Honda's marketing. He said Honda is not selling value well.
I don't get that from him. Value has a lot of different faces today. Because we don't chase the incentive game to the degree that others do, value can take on different meanings. We didn't double our spending with cash for clunkers, but people voted with their dollars. I take it as a message.
There's a lot of incentive spending now because people figure demand for used cars in 2013 will keep residuals up. Do you agree?
There will be a shortage of used cars in two, three, four years. But with incentives, it's always, "Just one more drink." People said Honda broke down with 0 percent financing, which we didn't. It was zero down but never 0 percent. The big thing was a math problem. You either put 2K down at $199 a month or zero down and $250 a month. It depends on how you are playing with your marketing money. If it's just cash on the hood, you are not helping the residual. If it's leasing and you believe the residual will be higher, that plays into the market because you are getting those cars back. Usually, cash plays into a lower [residual] value.
Are you surprised that Mazda has passed Honda as No. 1 in residual values?
Residual reaction is not a short-term thing. There will always be someone who will jump up or down. You have to ask if they backed out of fleet or did something on incentives. But you can't react on a year-over-year basis. You have to look at the newness of product, where you are in the product cycle, how vehicles are performing in the market today. We're seeing a lot of mixing in values.
Without rear-wheel-drive vehicles, can Acura be a full-fledged luxury brand?
It will compete as a true luxury vehicle. That definition of luxury is changing. Once it was believed that luxury had to be rear-wheel drive. But we're seeing others like BMW coming to front drive. The market is changing. It's getting to be an older and older viewpoint that luxury has to be some drive configuration. It's about, "How does the car feel, ride, handle and perform?" From that, you can ask if it has to be a V-8 or V-6 or turbo-four. I am aware of the traditional view, but I think it's changing pretty rapidly.
Are you looking at smaller Acura products -- a return of the RSX or Integra, perhaps?
Watch this space. As the industry continues to hit 35.5 mpg fuel economy, there are only so many levers you can pull: powerplant or size and weight. As you see technology continue to expand, there are certain limits, be it direct injection or turbocharging. Efficiency and real estate in the vehicle are at a premium. How do you provide all that size and package and ride and handling and low rolling resistance? Not in a rear-drive V-8. We're going to see a strong shift in powerplant and configuration. It will be tougher and tougher to survive without significant change.
Do you think Honda made the new Accord too big?
We made it for the market as we saw it. It's still very efficient and it plays very well in that segment. Where is the future of any of those segments? It has to do with timing. I don't think anybody five years ago would have bet we would have a 35.5 mpg fuel economy standard or an economic meltdown or high fuel prices. Our crystal ball isn't much better than anyone else's.
The redesigned Civic will not arrive until 2011, well past the usual five-year product cadence that would have meant a debut this fall. Are you delaying the launch because of changes you needed to make?
It's coming next year. In general, we are not changing cycles. Some of that is being able to have the opportunity to change [based on] what you see happening in the marketplace or with technological evolution. We change products as need be. The ability to do something based on more current information is better than waiting a full model cycle. We have new information, and there is a changing dynamic of the marketplace.
Also, the Civic is a global vehicle. At its peak it sells 1 million units a year around the globe. Although the U.S. market is a huge piece of that, there are other parts of the world where other concerns come in, such as CO2 emissions in Europe.
The Element and Ridgeline are niche products. Will they be replaced or go away?
They work very well for Honda. Both brought buyers to Honda who previously didn't consider us. We had never built a pickup. And the Element is a cult vehicle for skiing, biking, the outdoors. We look more about what it takes to create the same loyalty or if it entails a new value proposition. Whether it's Element 2 or Ridgeline 2 is the $64,000 question.
How is the initial reaction to the Crosstour? Do you see the people-hauler segment changing and affecting Odyssey sales?
Reaction to the Crosstour has been very good. It expanded the Accord lineup, and shoppers like the configuration and versatility. I don't know whether it will inflict damage on the minivan segment. Odyssey still has 25 percent of the segment. We have a new one coming this fall. We still think it will do for the minivan segment what the original one did. I think Crosstour and Odyssey can coexist in the marketplace. It's the same psyche but different generationally, attitudinally and also in the capacity of the vehicle.
Where do you see gasoline prices heading this summer, and can that help Honda?
You don't have to be an economist to see fuel prices go up in summer. They shot up in 2008 for all sorts of reasons. I can't predict three to six months on fuel prices, but oil is a finite amount, and it's simple supply and demand. Honda always has been about fuel economy and efficiency. Our product development has been about "machine minimum, man maximum." We do what is right for the world, and that's not changing. When you set out to be a company that society wants to exist, doing right is the right thing.
