Honda Mapping Out A Corrective Course

It’s a tale of two headlines this morning: The Wall Street Journalis watching a “Car Wreck: Honda and Toyota.” The San Francisco Chronicle’s SF Gate, atop a Bloomberg News story, informs us that “Honda Sees Surprise U.S. Sales Gain Meeting Pent-Up Demand.” Both are correct but the tale of what’s happening with Honda, and where it may all be going, is instructive.

Honda’s biggest problems have been natural disasters (the tsunami in Japan earlier this year and, recently, flooding in Thailand that is disrupting production at its facilities there) and the strong yen, which undermines competitive pricing and diminishes profits earned overseas, Mike Ramsey andYoshio Takahashi point out in the Journal. That led to a bleak and resigned outlook at a briefing on its quarterly results in Tokyo yesterday.

“On Monday, Honda said it was powerless to stop the forces afflicting it, withdrawing a profit forecast for the fiscal year and posting earnings that declined 56% on production disruptions and weak sales for the quarter ended Sept. 30,” they write.



Although Honda has not suffered the embarrassing recalls that Toyota has in recent years, the quality of some recent models has come under fire. Indeed, Fort Lauderdale Honda dealer Rick Case, who has pretty much been cruising on a constantly replenished tank for 40 years, bemoans the poor reviews for the redesigned 2012 Civic compact and says that a “makeover” is in order.

Still, he tells the Journal, business will be up 20% in October compared to September as production has come back on line. (Honda currently has 33 days of total inventory, below the industry norm of about 60 days, according to J.D. Power & Associates.)That will still leave Case down 20% from last October, but he’s not the only one who saw a pleasantly surprising reversal in the last month.

“Defying analysts' projections,” Bloomberg’s Alan Ohnsman and Craig Trudell write, Honda’s sales chief in the U.S. tells them that pent-up demand would be responsible for an October sales gain --  Honda's first since April –- making scrap metal out of five analysts' average estimate for a 2.5% drop. "Everything we have inventory of is doing well," American Honda evp John Mendel tells them.

Ohnsman and Trudell report that dealers took orders for more than 50,000 Hondas and almost 6,000 Acuras from mid-June through August, which Mendel says will provide a fourth-quarter "tailwind." By the end of the year, American Honda may make up about half of the 200,000 deliveries lost since the March tsunami, he predicts.

The efforts will be hampered by the Thailand floods, however, which are affecting the supply of "a few critical electronic parts.” Production at Honda’s U.S. factories is being cut by half through Nov. 10, factories will be closed for a day on Nov. 11, and overtime production has been eliminated for November, Jerry Hirsch reports in the Los Angeles Times.

On the currency front, Japan yesterday intervened in foreign exchange markets to force down the value of the yen in order “to shore up the export end of its economy,” writes Hiroko Tabuchi in the New York Times. The move –- the fourth time Japan has sold yen for dollars in little more than a year -- “came too late to help businesses like the Honda Motor Co.,” Tabuchi points out. ButJapanese finance minister Jun Azumi says Japan will continue to intervene in the market until it is satisfied with the results. He blames speculators for thwarting its efforts to reflect economic fundamentals.

Automotive News reports that Honda is moving to address the issues with its latest Civic with a faster-than-usual mid-cycle update.

"We take feedback seriously, regardless of who it's from, and we will act accordingly quickly," he tells the trade journal in an interview published on CNET.

The article points out that a hard-hitting review for penny-pinching in Consumer Reports and a Wall Street Journal story calling the car a “betrayal” have been “damning when competitive entries from Ford, Hyundai, and Chevrolet have shown major improvement.”

"I don't know how much we can do, and how quickly," Mendel said at the launch of the r2012 CR-V crossover. "But the comments of Consumer Reports and our customers have not gone unnoticed. We are appropriately energized."

If nothing else, Honda at least seems to have the correct address typed into the customer-satisfaction GPS.

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