It is a big year for Honda Motors (NYSE:HMC). The automaker will introduce a number of key models in 2014 in a bid to boost its American operations. North America is indispensable to Honda’s profitability since more than 40% of the company’s sales come from this region. Therefore, it isn’t surprising to see Honda focus its energy on building a vehicle that the American public will like.
In 2012, Honda unveiled its mid-term plan in which the automaker outlined a plan to sell 6 million vehicles by 2017, up from ~4.0 million in 2012. The success of these vehicles will play a huge role in deciding whether the automaker will be able to achieve its target or not.
We have a $43 price estimate for Honda Motors, which is about 20% above the current market price.
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High Volume Vehicles
The first of these vehicles will be the revamped version of the Fit. The vehicle has met with overwhelming success in Japan, where it was launched last year. The automaker received a staggering 62,000 orders within four weeks of its launch, almost four times the company’s expectations. The Fit eventually overtook the Aqua to become the highest selling car in Japan.
In addition to the Fit, the automaker will also debut the all new Vezel, a compact SUV. Both the Fit and the Vezel are built on the same vehicle platform. 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 lack of any vehicle in the crossover segment, the company could be losing out on sales in this segment.
Honda first showcased these vehicles during January’s Detroit Auto Show. For its American operations, Honda will be producing these vehicles at its new Mexican factory, whose construction was finished recently. The plant will have a capacity of 200,000 units, and will offer the automaker enhanced flexibility to raise the supply from within the region, in case the demand for these vehicles remains firm.
Going forward, the Fit is hugely important to Honda’s strategy. Honda expects the model’s sales to pip those of Civic to become its largest selling vehicle. The sales could even surpass 1.5 million units by 2016 as per the company’s estimates. The Fit is also known as the Jazz in some countries. 
Recently, Honda announced that it will create a separate marketing division for the Acura brand. This move will provide a greater autonomy to the Acura division. Reviving the brand has been one of the priorities for the company. In 2013, the automaker announced it will pour 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 luxury brand did garner some momentum during the year as sales rose 5.9% to 165,436 vehicles in the U.S.  However, some of the newly launched vehicles such as the ILX and the RDX have witnessed sales declines lately. Acura will also introduce the 2015 version of the TLX later this year.
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. While the average selling price (ASP) of a Honda vehicle is close to $25-26,000 in the U.S., the corresponding figure for an Acura vehicle is in excess of $40,000. Notes: