Minoru Takei spent the winter of 1990 peering into cars driven by young women. Japan's minicar market was slumping, and Takei, Honda's development chief for extra-small vehicles, planned a cost-cutting revamp of the Today, which Honda doesn't export. He had to do it, however, without losing features that appeal to the car's mostly female owners. Finally, he decided to junk Today's hatchback for a cheaper trunk. With other efficiencies, that let him add an air bag, cut the price of last January's model by $440, and post March unit sales 21% above his target. "We were the weird ones in the company," he says. "Everyone else was upgrading and ignoring us."
They're listening now. With Honda's sales hurting in Japan and the U. S., "our focus now is value for money," says Shinya Iwakura, a Honda Motor Co. director. In the booming late '80s, even subcompacts got bigger and sprouted Lexus-like gadgets such as vibrating side mirrors to shake off rain. But the recession has dulled budget-wary buyers' appetite for top-end features on what were once economy cars. "Japanese carmakers overused their strengths," says Takahiro Fujimoto, an auto expert at the University of Tokyo. "They must now develop a keen sense ofpriority."
NEW THINKING. Easier said than done. The sharply stronger yen, plus laws requiring new safety and emissions gear, mean Japanese carmakers have to cut costs just to stay even. They won't risk safety, reliability, or performance. But the pressure is so intense that instead of insisting on perfection, they're looking for areas where average will sell. Takayasu Honda, the Corolla's chief engineer, wants to shave 10% off the cost of an air-bag system, for instance, partly by making the gold-plated connectors on its sensors thinner. He's also investigating whether it's worth the expense to ensure especially narrow seams between body panels when U. S. buyers don't seem to notice. "If the market accepts lower standards, is it really a good idea to keep standards at our level?" he asks.
Maybe not. That's why cost-cutting, which used to mean cheaper ways to manufacture, now means cheaper design. "It's a matter of completely changing our way of thinking," says Hiroyuki Ito, the subcompact Civic's chief engineer. At Honda, whose engineers have had a notoriously free hand, the revised mindset began with the new Today. Dumping the hatchback saved money because a vehicle with just a trunk needs a less extensive superstructure. Takei also kept 40% of the parts in the earlier version. On the new Domani, a sister to the Civic that's sold only in Japan, 60% of the parts in a model unveiled in October are shared with other Hondas.
Most important, Takei's 30-member team pioneered development changes now used throughout the company. A year before design drawings were finished--instead of the usual six months--40 first-tier parts makers that contribute 90% of the value of the car were invited in. They took apart an old Today, spread out the pieces at Honda's research and development lab in Tochigi, and offered ideas on making parts less expensively. More time for tinkering led to more accurate--and often, lower--cost estimates. "Investing time early means fewer surprises," Takei says. Now that Honda has practiced on two domestic cars, its export models are getting the treatment.
In short, low-cost development such as that achieved on Chrysler Corp.'s Neon is becoming de rigueur for auto companies. Entering its fiscal 1993, which ends in June, Toyota Motor Corp. planned $350 million in cost cuts to avoid an operating loss. It axed $532 million in just the first half and now expects savings for the year to total $880 million--roughly one-third of pretax profit. It'll take some time for the Japanese to adjust to being more average. But it's a sacrifice they'll gladly make to get results like that.