CAN HONDA BUILD A WORLD CAR?
The carmaker is betting a flexible design will make its new Accord a global hit
Executives at Honda Motor Co. knew they had a problem on their hands the moment they launched the sporty, restyled Accord four years ago. It was too cramped for U.S. drivers, but not stylish enough for the Japanese.
Honda's hands-on president, Nobuhiko Kawamoto, heard ominous rumblings from the sales staff when he made a trip to the U.S. just as the '94 Accords were rolling into showrooms. They told him that customers were complaining that the new Accord was just too small. Fearing that the company's most important car might come up short in both markets, Kawamoto took drastic action. Despite the late date and at a cost of tens of millions of dollars, he ordered emergency surgery on the Accord, sending Honda engineers scurrying to lengthen its nose and bulk up its rear end.
The costly fixes, which didn't reach the market until the 1996 model year, worked in the U.S. Sales of the Accord surged 12% last year, nearly toppling the Ford Taurus as America's top-seller. But Japanese buyers griped that the car had grown too large and dowdy. The Accord flopped in Japan, just as it had when Honda restyled it back in 1990.
For most of the Accord's 21-year history, Honda has been frustrated in its struggle to popularize its biggest seller in all the world's major markets. Yet Honda cannot afford to fail: More than most auto makers, it depends on its No.1 model. The Accord makes up almost half of Honda's sales in the U.S., its biggest market. Worldwide, Honda devotes more than a quarter of its production to the Accord. And unlike the CR-V, Honda's popular sport-utility vehicle, there is nothing niche about the Accord sedan. It competes squarely in the middle of the world's biggest car segment, the family sedan. Says Kawamoto: "The Accord is the rice in our meal."
Still, on the surface, the highly successful auto maker would appear to have little to worry about. Rebounding smartly from a downturn in the early 1990s, Honda introduced a raft of recreational truck models at home last year that helped it climb into third place in sales for 1996. That success, as well as continued strong earnings in America, more than tripled Honda's net income to a record $1.9 billion for the 12 months ended Mar. 31, 1997. Honda's stock price has soared 40% this year, making it Japan's second most valuable carmaker, trailing only Toyota.
CUSTOMIZING CARS. But Kawamoto realized years ago that Honda's long-term success was threatened if the auto maker couldn't make the company's most important car more successful outside the U.S. At the same time, to keep up with the needs of its aging baby-boomer buyers, Honda executives say they needed to substantially enlarge the new U.S. version. The obvious solution to the Accord's woes--designing a different model for each market--was out of the question. Honda may have big brand presence in the U.S., but it ranks only 13th among the world's auto makers. That means it can't afford to spend as much as its bigger rivals--not even on the all-important Accord. While General Motors Corp. budgets a generous $9 billion a year for research and development, for example, Honda gets by with a mere $2.1 billion.
Now, however, Honda may have found a way to customize the Accord for world markets without breaking the bank. The completely overhauled 1998 Honda Accord that will hit U.S. showrooms on Sept. 25 will look and feel nothing like the Accord being introduced simultaneously in Japan, or the one that will debut in Europe next spring. The American Accord will be a big, staid family car, matching the Ford Taurus in interior roominess. The jazzy Japanese car will be a smaller, sportier compact, aimed at young professionals. The European version will be short and narrow and is expected to feature the stiff and sporty ride Old World drivers prefer.
Honda's secret lies in an ingenious frame that allows the auto maker to shrink or expand the overlying car without starting from the ground up. By coming up with a platform--by far the most expensive part of a new car--that can be bent and stretched into markedly different vehicles, Honda has saved hundreds of millions of dollars in development costs. Analysts estimate that Honda developed the Accord for a relatively modest $600 million. In comparison, Ford Motor Co. spent $2.8 billion redesigning the 1996 Taurus.
Honda's unusually flexible global platform gave birth to three distinct Accords that cost 20% less to bring to market than the single Accord developed four years ago. That was critical to Honda's achieving savings of $1,200 per car. And it's a key reason why Honda can now offer a much larger U.S. car with more features, while freezing base prices, which are expected to start at $15,500. The savings will also allow Honda to slice $1,000 off its premium Accord model. Now starting at around $21,500, it promises to supercharge the already heated battle with the Taurus and the Toyota Camry. "The customer is getting a heck of a lot more value for the money with the new Accord," says Lehman Brothers auto analyst Joseph Phillippi.
More important, Honda might finally have cracked the code for developing a global car. For the leading auto makers, that has long been the Holy Grail: a single car that could satisfy the masses worldwide. Such a car, the thinking goes, could command incredible economies of scale as hundreds of thousands, even millions, of versions of the same model were stamped out for sale to customers from New York to Tokyo. "The auto industry has been talking about global cars for eons," says auto consultant Christopher W. Cedergren of Nextrend in Thousand Oaks, Calif. "But nobody has really succeeded."
Many have stumbled trying. Ford lavished an eye-popping $6 billion on a vaunted world car program earlier this decade. Its Mondeo premiered in Europe in 1993 and reappeared as the Ford Contour and Mercury Mystique in the U.S. a year later. The compact Mondeo did well on its home turf but never took off in the U.S. More recently, GM based its Cadillac Catera luxury sedan on its European Opel Omega. The Catera, launched last year, hasn't come close to the success of the Omega. "In a world market, one size doesn't fit all," says Maryann Keller, auto analyst with Furman Selz Inc.
Nevertheless, Ford and GM continue to pursue global product strategies. By early next century, GM plans to build all its cars and trucks around the world from just seven platforms, half the number it uses now. And a primary thrust of the massive Ford 2000 global reorganization launched in 1994 was to develop cars and trucks for worldwide markets from shared platforms. Ford predicts its efforts will cut development costs by $11 billion over the next five years. Back in Japan, both Nissan and Toyota are also trying to maintain or reduce the number of platforms, though they plan to share them regionally, rather than globally.
Honda's twist on the concept is to reject the cookie-cutter mentality that tripped up so many auto makers before it. Rather than shipping the same car around the globe, only the underlying platform will be used worldwide. Honda expects to use the same foundation for vastly different vehicles. A year from now, the Accord platform will underlie a new minivan. Two years away is a jumbo sport-utility vehicle equal in size to the imposing Chevrolet Tahoe, analysts say. The same Accord platform also will serve as the basis for two Acura luxury cars to be launched in 1998 and 1999.
Honda is not the first to derive multiple models from the same platform. Toyota recently began building its new Sienna minivan off a stretched and widened version of its Camry sedan platform. But analysts say the Accord platform is more malleable than anything before. Toyota concedes that it had to reconfigure the entire rear frame of its Camry platform before it could accommodate the wider Sienna. And Toyota will use that platform only to make different models for the U.S. market. "Honda has come up with the best approach for going global," says Cedergren. "They can easily and inexpensively customize and design products for each market around the world."
When the American Accord debuts, customers will find a stately car that makes no concessions to narrow Japanese and European roads. Honda engineers pushed the wheels nearly four inches farther apart than on the Japanese model. They also lengthened the Yankee version by more than half a foot and raised the roof an inch. That allowed Honda to expand the passenger compartment by seven cubic feet, giving the new Accord more interior room than a Camry. "It's the most mainstream Accord we've ever built," says Thomas Elliott, executive vice-president of Honda's U.S. sales and marketing. The U.S. car classifies for the first time as a midsize, not a compact.
Honda needs any edge it can get if the Accord is to make a run at the hot-selling Camry, which supplanted the Taurus as America's best-selling car this year. A year ago, Toyota ratcheted up the competition in the already brutal $75 billion family-car market by launching a smartly restyled Camry with a $1,000 price cut on some of the most popular versions. The Camry's success forced Ford to slap a $1,500 rebate on the Taurus in a vain attempt to keep pace. The Accord, meanwhile, dropped back to a disappointing fourth in the sales race this year, its lowest ranking this decade.
Honda is gunning for the Camry by keeping the price of the popular Accord LX under $20,000 and equipping it with features like stronger air conditioning and a road-hugging high-performance suspension (table). Flush with the success of the Camry, Toyota has hiked prices 1.7% on 1998 models, pushing the price for the popular LE version, comparable to the Accord LX, to $20,638.
PRICING PUNCH. And for the first time, Honda is taking direct aim at the Taurus, which only comes with V6 engines. Honda is cutting $1,000 off the price of the Accord model equipped with a new, 200-horsepower V6, bringing it to about $21,500 with standard options. That's still more than Ford's $19,300 for a similarly equipped '98 Taurus, with its premium V6. But Elliott thinks consumers will pay more for Honda's quality and roomy interior and expects Accord V6 sales to triple. Ford execs say they aren't scared by Honda's move into Taurus' midsize-car territory. But Ford has announced price cuts of $740 to $2,190 on all 1998 Taurus models.
Honda executives expect the new Accord to help power the auto maker to total U.S. sales of 1 million units by 2000, up from 843,928 last year. The Accord factory in Marysville, Ohio, has been gearing up to produce up to 470,000 Accords annually. That's well above the 382,298 Accords sold last year in the U.S. Indeed, even archrival Toyota thinks Honda might have come up with the right combination of size, features, and price to give Camry a run for its money. "It will be a real horse race," says Toyota spokesman James R. Olson. "It will come down to who can produce the most."
Elsewhere, Honda is headed for a rougher ride. In Europe, where it commands just 1.5% of the market, it will face stronger competition as local carmakers continue to boost quality. But Honda hopes tightened suspension, which provides better handling on narrow roads, as well as a lighter engine and better gas mileage will rev up sales in Europe.
Nor will the going be smooth in Japan, where the Accord faces a market keener on sporty trucks than four-door cars. Accord station wagons outsell sedans by more than four to one in Japan, but both versions are marginal. Of 783,000 Hondas sold in Japan last year, only 56,000 were Accords. Honda is counting on the redesign to finally make an impact at home.
At least this time around, the Japanese Accord won't be burdened with features dictated by American tastes. Honda execs say they are making the Japanese Accord a "technology play," packing it with high-tech features like an optional navigation system tied into the Internet. Besides being smaller than its U.S. cousin, it will have a sporty metallic automatic transmission lever that looks and feels more like a stick shift. Since there's not as much driving on the open highway in Japan, it won't have cruise control.
The genesis of these custom Accords goes back five years. Frustrated with Honda's inability to leverage its flagship brand around the world, Kawamoto ordered his engineers to come up with different Accord designs for each region. But in keeping with his reputation as a ruthless cost-cutter, Kawamoto decreed the designs had to work within an excruciatingly tight budget. "Honda is like a small country fighting with large countries," says Takefumi Hiramatsu, an executive chief engineer overseeing worldwide development of the car. "Unless we come up with unique ideas, there is no way we can win this war."
His solution was to develop radically different vehicles based on a single frame. Hiramatsu set up a skunk works to create the flexible foundation he envisioned. To head the research project, he recruited Honda engineer Yozo Kami, who had made a name for himself as a suspension specialist.
At first, Kami's mission seemed overwhelming. To achieve Kawamoto's goal of truly distinct cars for different markets, he'd have to find a way to vary the platform's width. Many engineers thought that was impossible. Although plenty of auto makers have lengthened and shortened platforms, most thought that widening one would require an expensive overhaul of the frame. That's why U.S. versions of cars designed for the narrow roads of Europe and Japan always have been too cramped for Americans.
Even as Kami struggled, a crisis brewing over the 1994 Accord made clear just how crucial his task was. Internal battles over design led to compromises that killed the car's chances in Japan before it ever hit the road. "We knew even as we were developing the Accord in 1993 that it would not sell in Japan," says Hiramatsu. "And everyone knew we could not let this happen again."
After hitting roadblocks for a year, Kami had an inspiration. Automotive engineers have always connected a car's wheels to its rigid mainframe. But that made adjusting the wheels' width impossible without tearing up the frame at the cost of tens of millions of dollars. By moving the car's big gas tank back between the rear tires, however, Kami discovered he could design a series of special brackets that would allow him to hook the wheels to the car's more flexible inner subframe.
That may sound relatively straightforward, but Kami's brackets were a big engineering advance. Roughly the size of a Styrofoam cup, the adjustable brackets allow Honda to easily--and cheaply--push the car's wheels together or pull them apart. As Kami developed three sets of the special brackets--for the U.S., Japan, and Europe--his plan to develop multiple cars off the same base no longer seemed such an insurmountable task. "That was the major breakthrough," he says.
BUDGET BITE. Hiramatsu agreed, and adopted the flexible global platform as a blueprint for the Accord. And he put Kami in charge of designing the American Accord, by far the most important of the models that would ride on the new platform. Yet Kami's colleagues still had their doubts, telling him his radical new platform could never be made into a mass-market car. "Some people thought it was impossible," he admits. "Persuading them was the most difficult part of my job."
Almost immediately, the design teams got hit with another problem: the Japanese economy, which was tanking even as the yen soared. Honda's profits fell 36%, to $200 million, as sales slumped 7% in the year ended in March, 1994. The word came down that the 1998 Accord must meet a budget 20% smaller than the 1994 Accord's. And it must be able to turn a profit even with an exchange rate of a superstrong 80 yen to the dollar. But with the yen now 50% weaker, the result of that belt-tightening is a much more profitable car. Analysts estimate that Honda will earn $2,500 to $3,000 on each new U.S. Accord, up from $1,700.
Ironically, Honda's austerity measures helped inspire the design theme for the all-important American Accord. During early stages of development, Kami and his engineers made frequent flights to the U.S. But with Honda pinching pennies, all employees were downgraded from business class to the cramped confines of coach. Kami would look longingly at the comfortable travelers in the front cabin. Gripes Kami: "I felt that an international businessman like myself should be riding in business class."
From this class envy came two design imperatives: The Accord's interior should be "business class" in size, and its overall design should incorporate the "glassy big top" look of a jumbo jet. So ingrained was the image that early renderings of the car featured a jumbo jet taking wing behind the Accord.
To ensure the best possible design for the U.S. market, Honda pitted its Japanese, U.S., and European studios against each other. Each team conducted extensive market research, visiting U.S. families to see exactly how they used their Accords--learning, for example, that Americans like lots of compartments for storing maps and change. Designers from all three studios took a joint road trip from Denver to Chicago. They took turns driving--and being driven in--a Taurus, a Camry, and an Accord to see how each felt.
In the end, the Japanese designers won out. But unable to accept the need for a conservative family car instead of a low-slung sporty sedan, they were soon sent back to the drawing board. After viewing their efforts in early 1995, Shinya Iwakura, one of Honda's top research executives, shot off a sharply worded letter to Kami. "You say it is a glassy big top, but it doesn't look like it," Iwakura wrote. "Design is the heart of the car. Your design is missing the heart." The designers quickly raised the car's roof and enlarged the interior. To keep some shred of sportiness, they steeply angled the windshield. "This was very difficult for the designers," Kami concedes. "But we needed the management pressure."
When Kawamoto came calling in early 1995, he brought even more pressure to bear. Under the glare of the California sun, his preferred location for viewing a new design, Kawamoto strolled around to the rear of the full-scale model. He was not impressed. He feared the backend--the view drivers see most often as they sit in traffic--was too bland. Recalls Kami: "He said we should make it stronger and more eye-catching." The team turned to their American colleagues, who added a new taillight bar, pushing it higher and spreading it across the car's backside. The rear end now stands out as one of the boldest elements of an otherwise tame design.
Designer Takashima put the revised Accord to one final test. On a snowy day in 1995 at Honda's Tochigi research center, he videotaped a full-size model of the Accord being pushed by two of his designers along a test track lined with 10 competing models, including the Taurus. Once Kawamoto viewed the videotape, he signed off on the design.
Still, the early prototypes turned up more problems. Honda had always prided itself on engineering cars with tight road manners. But when Elliott, the U.S. sales executive, took prototypes on midnight drives in L.A. in mid-1995, the big new model felt like an old-fashioned Detroit land cruiser. "As the car gets larger, it's easy for you to get that boat feel, like a Buick," says Elliott. "And that isn't where we wanted to go."
Elliott reported back to Japan that the car was handling "sloppy." So the engineers recalibrated the car's sophisticated suspension and tightened its steering. The tinkering continued for more than a year, until the engineers finally got it right this past March. "We had many lively discussions," says Elliott.
With the new models now hitting the road, the frustrations Kawamoto has borne since the 1994 Accord seem finally to be fading. "We have come up to a high standard, and we will never come down," he boasts. "We will again accelerate." Honda had better keep the pedal to the metal if it expects to maneuver the Accord into the fast lanes around the world.By Keith Naughton in Detroit and Emily Thornton in Tokyo, with Kathleen Kerwin in Detroit and Heidi Dawley in LondonReturn to top