Honda’s Ito Defends Efficiency Lead as Hyundai Gains

By Makiko Kitamura and Alan Ohnsman
June 23 (Bloomberg) -- Takanobu Ito became a star at Honda Motor Co. with his work on the NSX sports car, the company’s most powerful model. Now, as chief executive officer, he’s focusing on fuel efficiency as Ford Motor Co. and Hyundai Motor Co. threaten Honda’s leading position in North America.

While Honda’s fleet is rated the most fuel-efficient in the U.S., Ford’s Fiesta subcompact gets up to 33 miles per gallon in combined city/highway driving, compared with 31 mpg for Honda’s rival Fit hatchback. Hyundai’s Sonata sedan tops Honda’s top- selling Accord in economy and horsepower, and its revamped Elantra compact promises to use less fuel than Honda’s Civic.

“Ford is coming back, and Hyundai is gaining market share,” said Tadashi Usui, an analyst at Moody’s K.K. in Tokyo. “The gap between Japanese automakers and rivals is shrinking.”

Honda, after axing its V-10 NSX supercar project in 2008, is redoubling efforts to boost fuel efficiency to fend off growing competition. Ito delayed the release of a revamped Civic compact after telling engineers he was unhappy with its size and fuel economy, said Tomohiko Kawanabe, president of Honda’s research and development unit.

Even as factors including pricing and design shape research efforts, “fuel efficiency has become the first priority in our discussions,” Kawanabe said in an interview at Honda’s research center last month in Wako, west of Tokyo.

Risking Reputation
Honda’s U.S. sales gained 13 percent in the first five months of 2010, trailing industry growth of 17 percent. Ford’s rose 31 percent in the same period, while Hyundai’s sales grew 23 percent.

Japan’s second-largest carmaker has focused on only mild improvements in fuel economy recently, risking its “green” reputation, said Ed Kim, an industry analyst at AutoPacific Inc. in Tustin, California. For example, Honda uses 5-speed automatic transmissions as the industry adopted more efficient 6-speeds, and seems reluctant to use direct-injection and turbocharging technology, Kim said.

“Even before the green thing was big, they were into green,” said Kim, a former Hyundai product planner. “Over the last few years, they’ve been completely leapfrogged in new engine technologies.”

Honda’s U.S. fleet of Honda and Acura 2009 models averaged 23.6 mpg in the U.S. Environmental Protection Agency’s fuel efficiency assessment, adjusted for real-world driving.

Hyundai- Kia group vehicles were second in the 2009 model-year survey, averaging 23.4 mpg.

Hyundai models alone, excluding those of Kia Motors Corp., exceeded Honda’s fleet with an adjusted average of 23.9 mpg, according to EPA.

Depositary Shares
Toyota Motor Corp. had an adjusted fleet average of 23.2 mpg, and Ford, with a 20.5 mpg fleet, ranked seventh.

Honda’s American depositary receipts, each representing one ordinary share, fell 9 cents to $29.90 at 4:15 p.m. in New York Stock Exchange composite trading, have dropped 12 percent this year. The shares fell 1.5 percent to close at 2,720 yen in Tokyo.

Another motivation for Honda to raise vehicle efficiency is a U.S. regulation forcing an industrywide increase by model year 2016. Honda’s fleet must average 37.4 mpg by that time, a 50 percent improvement from about 26 mpg now, John Mendel, head of Honda’s U.S. sales operation, said June 8.

The global recession following the collapse of Lehman Brothers Holdings Inc. in September 2008 also spurred Honda’s strategic shift, said Ito, who became CEO a year ago.

“In a certain sense, Lehman was a blessing,” Ito said in Tokyo last month
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Unlike before the recession, price increases are tough to justify and vehicle size and fuel economy need to “conform to these times,” Kawanabe said.

Prius Competition
Expanding Honda’s line of hybrid cars is part of the strategy. Honda plans to introduce a new hybrid Civic with a lithium-ion battery that can store twice the power of a nickel- metal hydride battery, Kawanabe said. The company will unveil a new hybrid version of the Fit later this year.

Honda’s Insight and Civic hybrids haven’t gained ground on Toyota’s Prius, the world’s top-selling hybrid. The Prius outsold the Insight 6-to-1 in the U.S. this year through May.

One reason may be fuel economy. Toyota’s hybrid gets 51 mpg in city driving, while the Insight gets 40 mpg. Honda Executive Vice President Koichi Kondo also said the Insight, a compact model in the U.S. compared with the midsize Prius, may be too small for Americans.

The company is also exploring stop-start technology, turbochargers and expanding continuously variable transmissions to boost fuel efficiency, said Hiroshi Ataka, a Tokyo-based analyst at consulting company IHS Global Insight.

Favoring Hydrogen Power
While Honda is researching electric cars, it’s less optimistic about demand for them than Nissan is and favors hydrogen-powered cars as the ultimate zero-emission vehicle.

Honda set up a lithium-ion battery venture with GS Yuasa Corp. and can shift gears quickly if necessary, Ataka said.

The company stopped producing the NSX supercar, its fastest production model, in 2005. It planned to reintroduce it this year. Instead, it built the low-priced, sporty CR-Z hybrid that arrives in the U.S. in August.

As a young engineer Ito consulted bullet-train designers to develop an all-aluminum body for the first-generation NSX when superiors considered the notion impossible, according to a company publication.

“I love sports cars,” Ito said at the Beijing Motor Show in April. “But we have to watch the economic situation and our purse strings.”

Source;
http://www.businessweek.com/news/2010-06-23/honda-s-ito-defends-efficiency-lead-as-hyundai-gains.html