Feb. 26 (Bloomberg) -- Acura’s future was so dire four years ago that Honda Motor Co. began killing models and choking off product development. Now, Honda is putting $1 billion into its luxury brand, a perennial also-ran to Toyota Motor Corp.’s Lexus line.
Honda’s latest attempt to give Acura purpose is a parade of new products, including the flagship RLX sedan, an MDX sport wagon and the return of the NSX super sports car, priced above $100,000. Its goal is to tailor Acura to the tastes of the U.S. buyers it covets.
The product push this year comes after Acura’s U.S. sales have fallen 25 percent from a peak of 209,610 in 2005. Though Honda was the first Japanese automaker to sell a luxury car in the U.S., Acura never reached the peaks of Toyota’s Lexus line, the top-selling luxury brand in the U.S. from 2000 to 2011. And Acura has never captured the cachet of German luxury cars, forcing Honda to sell its upscale models on the cheap.
Acura’s “biggest negative is we are known as a value company in the premium space,” Mike Accavitti, Honda’s U.S. marketing chief, said in a Detroit interview last month. “What we have to do from a marketing perspective is ramp up the emotional element.”
Honda’s effort to elevate Acura shows how important -- and competitive -- the luxury segment has become for carmakers worldwide. Luxury sales have increased as the U.S. economy has improved and upscale cars provide generous profits and prestige that serve as a halo over an automaker’s entire model line.
Luxury autos account for 12 percent of global sales, “but are almost 50 percent of industry profits,” Johan de Nysschen, president of Nissan Motor Co.’s Infiniti luxury line, said in a briefing last month in Detroit.
Honda has jumped 50 percent since Nov. 14 as the yen has weakened. Even so, investors are willing to pay a smaller premium for Honda’s revenue compared with BMW’s sales than they have for most of the past decade.
Four years ago, Honda’s then-president, Takeo Fukui, reviewed the expansion plans for the company’s lagging luxury line. At the time, Acura’s U.S. sales were plunging by almost half, to 105,723 in 2009, as the recession ravaged auto sales.
So Fukui took a red pen to Acura’s budget. He scrapped plans to create an Acura dealer network in Japan. He killed development of a new NSX model with a massive V-10 engine. He also canceled plans to emulate German luxury cars by outfitting Acuras with V-8 engines and rear-wheel-drive vehicle platforms.
Now, Honda is turning in a different direction from its German competitors. Acura won’t chase the money in emerging markets such as China. Instead, it will try to restore Acura’s credibility as a technology leader in the U.S. and finally emerge from the near-luxury bargain basement.
Acura “will remain a U.S.-centric brand,” John Mendel, Honda’s U.S. sales chief, said in an interview in Orlando, Florida, this month.
Honda, known for efficient product development, is overhauling Acura’s lineup for what some automakers could spend on one model, said Rebecca Lindland, auto consultant with Rebel Three Media & Consultants in Cos Cob, Connecticut.
“If they can revamp the lineup for $1 billion, that’s money well-spent,” Lindland said.
In the U.S., auto sales have been growing by 10 percent a year since 2010 and disposable income tops $12 trillion, dwarfing what Asians and Europeans have to spend. The U.S. is also the market Honda knows best. The Tokyo-based company derives more than half its sales and profits from North America. U.S. drivers accounted for 89 percent of 2012 Acura sales, the company said.
Acura’s design studio is in Torrance, California, on the campus of Honda’s U.S. headquarters. Most Acura models are built in North America, and the company is preparing to build the NSX in Ohio.
“Honda really does its homework; they’re really in touch with U.S. consumers,” Kevin Tynan, Bloomberg Industries auto analyst, said Feb. 19. “But Acura is as anonymous as you can get. A lot of people don’t even know the relationship between Acura and Honda.”
Jeff Durgin, the president of a New Jersey construction equipment company, bought a $39,000 Acura TL in 2009 because he had owned eight Honda models. He kept the TL only a year and replaced it with Hyundai Motor Co.’s upscale sedan, the $41,000 Genesis, with a 429-horsepower V-8 engine.
“The Acura was a good car, but the ride was pretty rough and the styling was terrible, with a big duck bill on the front end,” said Durgin, 48. “It seems like Acura has lost its way.”
The angular grille Acura began affixing to its models in 2008 turned off owners, including Michelle Krebs, an auto analyst for researcher Edmunds.com who used to drive a TL. Auto reviewer Dan Neil, then of the Los Angeles Times, wrote that the grille, which Acura has since softened, made the TL look like “a very large anime robot beaver.”
“Acura’s designs got very funky,” said Krebs, based in Royal Oak, Michigan. “They tried to make their designs different to stand out, but they ended up looking quirky.”
Acura commands the lowest prices among major luxury automakers in the U.S., according to Edmunds. The Acura TL sold for an average of $36,657 last year, almost $7,000 less than a BMW 3 Series, a slightly smaller model, and $3,000 less than a Mercedes-Benz C-Class and Lexus ES 350, according to Edmunds.
Honda’s American depositary receipts rose 1.1 percent to $36.99 at the close in New York. They’ve gained 11 percent in the past six months.
Accelerating Acura starts with the comeback of the racy NSX, which goes on sale in 2015 and Honda promoted in a Super Bowl ad starring comedian Jerry Seinfeld last year. When Acura introduced the $89,000 two-seater in 1989, driving enthusiasts embraced it for the speed it generated from a powerful V-6 engine mated to a lightweight, all-aluminum body. Once so hot, the NSX starred in director Quentin Tarantino’s 1994 hit “Pulp Fiction,” driven by Winston “The Wolf” Wolfe, played by Harvey Keitel.
Acura stopped building it in 2005.
The NSX is being reborn as an all-wheel-drive hybrid, with a V-6 augmented by electric motors to generate the speed of a V-8, Honda said. It will be so fast that Honda intends to race it after the Grand-Am Road Racing and American Le Mans Series merge, depending on final technical specifications, said T.E. McHale, a spokesman for Honda’s motor sports unit. Honda has said the new NSX will race in Japan’s Super GT circuit.
Honda is hoping that by reviving Acura’s halo car, it can draw buyers to showrooms, even if they drive home in another model. Aiming for waiting lists, Acura will limit sales of the NSX to no more than 800 models a year, Mendel said.
Convincing NSX shoppers to settle for an Acura sedan or SUV might be a tough sell, Tynan said.
“I’m not sure a $100,000 halo car is going to get people to say, ‘I get Acura now’,” Tynan said.
While the NSX is designed to lead Acura’s style renaissance, the sales recovery must come from the RLX, which replaces the slow-selling RL, the MDX sport-utility vehicle, and a new mid-sized sport sedan that will replace the TL model, Mendel said.
Executives in Japan want U.S. sales for the premium brand to grow to as much as 20 percent of Honda’s total deliveries, up from 11 percent last year, said Koji Endo, managing director at auto analyst Advanced Research Japan. Akiko Itoga, a Honda spokeswoman, declined to confirm that target.
That would suggest that Honda is aiming to boost Acura sales by as much as 82 percent, to a record 285,000 from last year’s total of 156,216. Mendel said Acura’s U.S. sales goal this year is “about 180,000 to 180,000-plus.”
That would leave Acura still trailing luxury leaders Bayerische Motoren Werke AG’s BMW, which sold 281,460 models in the U.S. last year, Daimler AG’s Mercedes-Benz, which had 274,134 U.S. sales in 2012. Globally, BMW sold 1.54 million models last year, Volkswagen AG’s Audi luxury line sold 1.46 million vehicles and Mercedes had 1.32 million worldwide sales.
When Acura arrived in 1986, it was meant to showcase Honda’s engineering excellence taken to a higher level, symbolized by an angular A logo evoking an engineer’s calipers on the front of every model.
Twenty-seven years later, Honda continues to struggle to reach the highest level of luxury with Acura. And it is losing buyers like Chicago marketing executive George Schaumann, who owned four Acura models before he left the brand in September to buy a $45,000 Audi Q5 SUV.
“I’d be lying if I didn’t say I feel good about driving an Audi,” said Schaumann, 53, who traded in a 2010 Acura MDX for the German luxury model. “Acura is kind of stuck in Honda’s shadow, with designs that don’t make me think of prestige.”
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