Honda To Unveil Major Models At The Upcoming Detroit Motor Show

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Honda Motors (NYSE:HMC) has big plans for the U.S. in 2014. North America is Honda’s biggest market and accounts for more than 40% of the unit sales. Therefore, it isn’t surprising to see Honda focus its energy on building vehicles that appeal to American auto buyers. Honda will display a number of important vehicles to the public at the upcoming Detroit Auto Show in January.

The success of these vehicles will play a huge role in deciding whether the automaker can achieve its goal of selling 6 million units by 2017. Last year, Honda unveiled its mid-term plan in which the automaker outlined a plan to sell that many vehicles by 2017, up from ~4.3 million in 2012.

We have a $43 price estimate for Honda Motors, which is about 5% more than the current market price.

Fitting In The U.S.

One of the most awaited cars is the remodeled Fit. Honda introduced the third generation Fit in Japan during the third quarter and received a staggering 62,000 orders within four weeks of its launch, almost four times the company’s expectations. In the long run, Honda expects the Fit’s sales to behave like those of Civic to become its largest selling vehicle. The sales could even surpass 1.5 million units by 2016, according to the company’s estimates. [1]

Currently, Honda is building a new manufacturing plant in Mexico that will be complete by spring 2014. [2] Once complete, the new plant will be able to churn out 200,000 Fit cars annually and will act as a hub for distribution to North America and Brazil.

Another vehicle that will be on display will be the Honda Vezel, the automaker’s first crossover SUV. Both the Fit and the Vezel are built on the same vehicle platform. The Vezel will go on sale in Japan in the last week of December and will be eventually launched in the U.S. in the second half of 2014. [3].

Fuel prices have risen significantly in the past decade and therefore more Americans now prefer a compact SUV instead of a full fledged SUV, which tend to have low mileages. Honda’s CR-V SUV is popular among the public but due to a paucity of any vehicle in the crossover segment, the company feels it is losing out on sales.

Acura Revival

The Detroit auto show will also witness the debut of the Acura TLX, which will replace the TL. [4] The current version hasn’t been revamped for five years and a model refreshment was long overdue. Honda has also introduced the refreshed models of the MDX and the RDX this year. Sales of the Acura brand are up 6.4% to 148,685 units through November. [5]

Earlier in the year, Honda announced that it will pump in $1 billion to revive its Acura brand. In addition to new vehicle launches, the company will spend significantly on marketing in an attempt to makeover the brand’s image since the Acura brand is seen as a grade below its German counterparts. The prestige associated with a brand is pretty important in the luxury car market as better the perceived value, higher is the premium that customers are ready to pay.

Honda is looking at Acura as a long term perspective. If successful in the U.S., the company plans to take the brand to the burgeoning Chinese market. Healthy sales of Acura cars can result in significant additions to the bottom since luxury cars have a higher average selling price (ASP) and heftier margins. For example, the ASP of a Honda vehicle in November was $25,976 while that for an Acura vehicle was $40,597. [4]

See our complete analysis for Honda stock here

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Notes:
  1. CEO calls redesigned Fit Honda’s comeback car, September 9, 2013, autonews.com []
  2. Honda launches new Fit in Japan, has big expectations for North America, September 5, 2014, autoblog.com []
  3. Honda’s new crossover launches in Japan, headed for US in 2014, hindustantimes.com []
  4. Honda Says It’s ‘High Time’ to Boost Sagging Acura Demand, December 19, 2013, bloomberg.com [] []
  5. Acura USA November 2013 Sales Results, December 3, 2013, acuraconnected.com []
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