Honda’s Success In 2016 Defied Common Wisdom About Auto … – Forbes

Posted: Wednesday, February 08, 2017

Honda Motor Co. (NYSE: HMC) saw its market share increase in the U.S. auto market in 2016 as its sales grew by 4.8% compared to the overall market, which only grew by 0.3%. Overall, consolidated Honda vehicle sales, including sales of its premium brand Acura, increased by 3.5% as Acura’s sales declined by close to 11% in 2016. In many ways, the company’s 2016 performance defies the received wisdom about the auto industry. The general trend among auto makers is to chase market share especially by introducing vehicles in booming segments and to have models in the upper price ranges of those segments. In contrast, Honda has focused on improving its product quality and used a common platform to cut manufacturing costs on some of its highest selling models—the Civic, Accord and CR-V—to drive profitability.

However, the company wasn’t unaffected by broad, industry-wide trends. Despite sales of its flagship sedan Civic increasing by 9.4%, the company’s passenger car segment saw its sales increase by only 0.6%. This is still a much better performance than the overall market, which saw passenger car sales decrease by over 8%. In contrast, Honda saw its SUV sales decline by 0.5% despite the overall market growing. This was largely an issue of production and we’ve already written about how the Japanese auto maker has moved to remedy this going forward.

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The main driver of the growth in market share for the company in 2016 was the impact models in segments the company has traditionally been absent in- minivans and pick-up trucks. In 2016, sales of the Honda HR-V and Ridgeline grew by over 63,000 units. Going forward, the company is moving the production of the luxury SUV Acura MDX out of its Alabama plant to its Ohio plant in order to free up production space for additional units of Pilot, Odyssey and Ridgeline. Since, these market segments aren’t yet fully saturated and Honda’s product quality seems to help it win in every segment, we expect higher production to translate into higher product sales for the company. Consequently, we expect higher profits going forward as well.

One obvious area of improvement for the company going forward is its luxury brand Acura. The brand is under represented in the SUV and Crossover segment. These have been the fastest growing segments in the luxury vehicle market and increasing model count in these segments could help the company raise its profits, especially as each luxury vehicle sale is much more profitable than a sale in any other segment.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Honda Motor

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