Honda Record Sales Led by New Compacts in Emerging Markets: Cars

Honda Motor Co. President Takanobu Ito
Honda Motor Co. President Takanobu Ito said, “We will see the good uplifting effect from the Fit series.” Photographer: Junko Kimura/Bloomberg

Honda Motor Co. President Takanobu Ito forecast growth over the next two to three years will be led by sales of its range of new Fit vehicles as Japan’s third-biggest automaker expands in emerging markets.

“We will see the good uplifting effect from the Fit series,” Ito, 59, said yesterday in an interview at his Tokyo office, where Honda’s spaceman-like Asimo robot greets visitors by name. “So around the world, I believe 2013, 2014, 2015 will be years of growth.”

Ito’s focus on the Fit, a vehicle no bigger than Toyota Motor Corp.’s Prius, illustrates Honda’s expectations for global demand to increasingly tilt toward smaller autos in the next five years as fuel prices rise. That strategy is being emulated by General Motors Co., Fiat SpA and Toyota as compact cars are on pace to capture their largest share of the U.S. auto market since 1993, according to researcher Autodata Corp.

“In choosing a car, what every consumer looks out for is whether it’s environmentally friendly or not and how efficient a car is, so Honda’s strategy to focus on smaller models is appropriate,” Satoshi Yuzaki, Tokyo-based general manager at Takagi Securities Co. “The growth in emerging markets is incomparable to that in developed markets, so Honda’s target to get half of its sales from emerging markets is in line with the industry’s growth.”

Honda, forecasting to sell a record 4.3 million vehicles this fiscal year, is planning worldwide rollouts of new Fit vehicles, including a sedan and compact sport-utility vehicle, from next year, said Ito, who’s led the company since 2009. The start of a factory in Mexico will further increase production of the Fit, known as the Jazz in Europe, for the North American market in 2014, he said.

Larger Profits

Emerging markets, where Honda sold one-third of its vehicles last fiscal year, will lead the growth and account for half of deliveries by March 2017, according to a five-year plan unveiled by Ito last month.

While larger cars tend to fetch larger profits, Ito said he’ll seek to protect profitability levels by taking lessons from the company’s motorcycle division, Ito said. Honda, the world’s biggest motorcycle maker, generated an operating income margin of 11 percent last fiscal year, compared with a loss at the automobile business.

Ito declined to disclose profitability targets because the company traditionally only discusses those figures internally, most recently Oct. 11, he said.

Doubling Profit

In the year ending March 2013, Honda predicts net income to more than double to 470 billion yen, or 18 percent higher than the profit forecast at Nissan Motor Co. Like other Japanese automakers, Honda is recovering from last year, when vehicle sales tumbled to 3.11 million, or 21 percent below its last record in the year ended March 2008. Honda ranked ninth out of global carmakers last year, according to Bloomberg Industries data.

The U.S., which accounted for 47 percent of Honda’s revenue and 96 percent of operating profit last fiscal year, will remain the company’s most important market, said Ito, who worked for two years in Raymond, Ohio, at the automaker’s research & development center.

The latest version of the Accord, the second-best selling car in the U.S., is able to challenge the Toyota Camry’s lead, he said. The Accord midsize sedan was overtaken in 2002 by the Camry as the best-selling car in the U.S. -- a position that Toyota hasn’t relinquished since.

Disruptive VW

While Honda lags behind Toyota in the U.S., Ito said he sees Volkswagen AG as potentially the most disruptive competitor.

“Now’s the time when they need to think about whether they can adapt the car to one that is suited to the U.S. market and if you think about their actual capabilities, I think they’ll do that,” Ito said in reference to the Wolfsburg, Germany-based automaker. “They’ll be able to adapt the cars to suit the U.S. market. When they come up with that car, that will be the biggest competitor for us.”

The threat has yet to materialize as Volkswagen, which sold 12 percent of vehicles worldwide during the first six months of the year, only had a market share of about 4 percent in the U.S., according to Bloomberg Industries data. Globally, Volkswagen is targeting to become the industry’s biggest producer by selling 10 million vehicles by 2018.

Besides the Fit, the engineer-turned-president said the vehicle he’s most excited about recently is the Beat, a mini sports car from two decades ago that’s being revived with the latest technology. His interest in the Beat stretches back to when he was developing Honda’s top-of-the-line NSX supercar.

’Cute’ Sports Car

“When the Beat was being built, I was on the development team to work on the NSX sports car and sports cars are something I really love,” Ito said. “I was kind of envious of the little cute sports car.”

Average U.S. retail gasoline prices averaged at $3.813 a gallon this week, the highest for this time of year, according to Bloomberg data going back to 2004.

On China, where sales of Japanese auto brands tumbled 41 percent last month amid a territorial dispute over a group of islands, Ito said the company isn’t changing any of its plans for the country. China may develop into the world’s biggest market for hybrid vehicles and it’s unlikely that the current political tension will last for longer than six months, he said. Honda’s own China sales in September tumbled to their lowest level since May 2011.

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