Honda Motors‘ (NYSE:HMC) urban SUV, showcased at the Detroit Auto Show, is a preview of the kind of cars you can expect from the Japanese automaker in the coming years. The subcompacts will play a big role in Honda’s quest to grow its global sales to 6 million units in 2017 from about 4 million currently. Honda expects one-fourth of the total sales to come from the subcompact series which will include the Fit (or the Jazz), the City and the new compact SUV. Moreover, all of these vehicles share a common platform. The refreshed version of the Fit will also be launched in early 2014. 
North America is Honda’s biggest market and accounts for more than 40% of the global sales. In 2012, Honda sold 1.2 million units in the U.S. The crossover SUV or the ‘urban SUV’ as Honda likes to call it, will target the less affluent buyers than the ones that purchase the CR-V. 
Besides Honda, several automakers are looking to step up presence in the subcompact SUV category. Buick has Encore, BMW offers X1 and Nissan has Juke. Even Toyota showcased its refreshed RAV4 at 2012’s Los Angeles Auto Show and is looking to boost the sales of the model by 20% in 2013. 
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Honda presently has production constraints in North America but a new plant is being built in Mexico which will open in spring 2014. Once the facility is fully functional, it will be able to produce 200,000 cars annually and will allow Honda to launch the new SUV as well as introduce the new Fit in the U.S. next year 
SUVs have always been an integral part of the American car market since the customers have a preference for spacious and masculine vehicles. However, a decade of high oil prices have seen customers shifting to the more fuel efficient smaller cars. Crossover SUVs or subcompact SUVs target people who have a predilection for SUVs without compromising too much on the fuel efficiency.
Our price estimate of $36 for Honda’s stock is about 5% below the current market price.Notes: