Why Honda Is Boosting Its SUV Production

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37.23
Market
32.45
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HMC: Honda Motor logo
HMC
Honda Motor

Honda Motor (NYSE: HMC) has had a solid year in 2016 with its sales in the U.S. auto market increasing by 2.6% on a year-to-date basis even as the market has as a whole has declined by 0.2%. Surprisingly for the company, most of its growth has come from the sales of SUVs and Crossovers. While car sales for the company have declined by 5%, light truck sales have increased by 3.8%. This is all the more surprising since Honda’s traditionally highest selling car, the sedan Civic, has had an excellent year, with year to date sales increasing by 11.7%. In comparison, Honda’s highest selling SUV CR-V has seen its sales only increase by 1.8% so far this year.

honda 2016

The U.S. market is at a strange position in the life cycle of an auto market right now, with passenger car sales declining and most of the growth coming from the sales of SUVs, Crossovers and commercial trucks. In 2016, on a year-to-date basis, sales of passenger cars have declined by 8.9% so far this year, while truck sales, which are comprised of sales of SUVS, Crossovers and pick-up trucks, have increased by 6.9%. Honda, which has traditionally been weaker than Ford and GM in this segment, has been one of the biggest beneficiaries of this trend. The Japanese auto maker is now looking to capitalize on these unexpected gains by increasing production of SUVs in the U.S.

To this end, the company is under taking a few changes at its production facilities. The company will now start manufacturing the CR-V at its Mexico production facility to focus on increasing production of the smaller HR-V SUV, which has seen its 2016 sales increase by 92.4% so far this year. The success of the HR-V is a strong pointer to the company that it could have sold more units of the CR-V in the U.S. had it not been for a supply shortage. Honda having maxed out its production capacity for the CR-V could not have increased its growth rate any further. However, the company wants to remedy this situation by adding the production of the CR-V to its production facility in Greensburg, Indiana. The factory already produces the Civic sedan, which shares its architecture with the CR-V. The company might also import CR-Vs from Japan if demand continues to exceed expectations.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Honda Motor

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