Honda Debuts New Fit In Japan; Global Launch Within Twelve Months

Honda Motors (NYSE:HMC) finally launched the third generation version of the Fit subcompact in Japan. The hybrid version of the new Fit has a mileage of 85.6 mpg, making it the most fuel efficient car in Japan. Following the release in Japan, the refreshed model will be launched globally within the next twelve months. The company is building a new manufacturing plant in Mexico that will be complete by spring 2014. Once complete, the new plant will be able to churn out 200,000 Fits annually and will act as a hub for distribution to North America and Brazil. ((Honda launches new Fit in Japan, has big expectations for North America, September 5, 2014, autoblog.com))

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 gets liked by the American public.

Hugely Important

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. ^[1] The Fit is also known as the Jazz in some countries.

Last year, Honda unveiled its mid-term plan in which the automaker hopes to double the sales to 6 million by 2017. Honda expects a majority of the incremental sales to come from the subcompact series which will include the Fit (or the Jazz), the City and the new compact SUV. All of these vehicles share a common platform.The crossover SUV or the ‘urban SUV’, as Honda likes to call it, will target less affluent buyers than the ones that purchase the CR-V.

SUVs have always been an integral part of the American car market since the customers have a preference for big and spacious 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 fuel efficiency.

See our complete analysis for Honda stock here

Shares of Honda have traded in a narrow range this year on a couple of modest quarters. Investors were expecting the company’s profits to soar now that the yen has depreciated against the dollar. However, Honda exports only a tiny fraction of its Japanese production, so a weak domestic currency does not have a significant impact on its overall profitability.

But, in order to take advantage of the weak domestic currency, Honda started building a new production plant in Japan, which recently became functional. A greater proportion of production in Japan will benefit Honda’s margins now that the yen has depreciated against the dollar. Besides Japan, Honda is also looking to increase production in China, Thailand and as already mentioned, Mexico.

We have a $42 price estimate for Honda Motors

Understand How a Company’s Products Impact its Stock Price at Trefis

1. New Honda Fit, Fit hybrid goes on sale in Japan, September 9, 2013, usatoday.com [↩]