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  TOV News > Summary of 2006 Mid-Year Speech by CEO Takeo Fukui > > Honda's Hybrid Strategy

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Varmint
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Honda's Hybrid Strategy [View News Item]    (Score: 1, Normal) 05-18-2006 12:16
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Danielgr wrote the following "manifesto" :) in another thread, but I thought some of the topics he brought up were worth a discussion of their own.

danielgr wrote:
WHY THERE IS NOTHING WRONG WITH A TRULY DEDICATED HYBRID

To me, as others have pointed out, Honda might be concerned about the Prius and from a marketing point of view (for me it was the right thing to do), they have to acknowledge that they made a mistake when considering Hybrid development. The mistake was to believe that there were lots of people ready to pay for having a green car. And Toyota has proved that what people is ready to pay for, is to tell other people that they are driving such a car. A car that anybody would identify as "hey look, that's a Honda hybrid", and not "hey look, that's a Civic (Hybrid)".

Also, one of the major strengths of the Honda IMA system is that it can be fit in any car of their line-up without much problems. But that's only an advantage for Honda and for those seeking for a normal car with better fuel efficiency.

At the end of the day, they have both a problem with the press and a problem with the buyers.

With the press, because they don't compare the Honda Civic Hybrid to a petrol Toyota Corolla, they compare Hybrid to Hybrid regardless of anything else. That's another mistake that puts Honda as a looser no matter how many reviews one can read. And many of this disadvantages come from the fact that while the Prius is optimized to host Toyota's Hybrid system, in Honda is the Hybrid system that's optimized to fit "anywhere".
As a package, when thinking about a single product, Toyota has that advantage.

A problem with the buyers. Because whenever they think about buying a Civic IMA, they have a vehicle (petrol Honda Civic) that offers exactly the same car with all its virtues, but with more power, cheaper price, and added functionality (fold down back seats). So it's all that versus a better fuel efficiency, obviously most people choose the petrol Civic, also because in the US it's considered to be already quite a fuel efficient car.

By bringing their second dedicated hybrid to the market, Honda may regain a hybrid lead that the press have taken from them since Toyota launched their second-gen Prius (although some of us don't share that view).

And you can see that's smoothing pretty special when you see the sales target. How could Honda sell 100.000 Fit Hybrid (in the US) when they are planing to sell less than 50.000 petrol Fits this year... ?? Of course, that figure may rise, but I doubt that the Fit can outsell the Civic, and I doubt that half of the buyers would choose an hybrid version vs. a petrol one of exactly the same car.

Now, bring a new car, something where the Hybrid powertrain is not an option, where the system it's at the core of a great car developed around that technology. Things will be different.

And about price? Well, that's not necessarily more expensive to produce, and it's not necessarily more expensive to develop than any other car, not as long as you don't start from zero on the platform (and I already said before how that could be done).
Specially because whenever you do a Civic Hybrid, Accord Hybrid, Fit Hybrid, you still have to build a Civic, an Accord, or a Fit, and then add the Hybrid stuff. No matter how much they reduce the costs of the IMA, it's always going to be an "add-on", and people will still have to decide between the same car with or without the hybrid option.
If you produce a car that's hybrid, and with nothing else to compare to, you can still make it cheaper than a Civic, because the "hybrid system" is not an option any more.

WHY HONDA HAS NOT DONE IT BEFORE?

Well, maybe because they did not thought that the market was mature enough to justify a dedicated hybrid product development. But when you fix sales targets of 200.000 globally, that means that they think the market is ready for hybrids now. Honda has lots of cars selling globally with lower sales numbers, so there is nothing wrong or special about it, it's not additional costs, is a new Honda on the line-up, just like the Ridgeline was past year for example.

Also, maybe Honda did not feel that their technology was ready to be produced and marketed in large scale. When introducing such new things, you have to be careful not to make mistakes, because no matter how good the idea is, if you fail at the beginning, people will censure it and from a marketing point of view you'll be dead. That's maybe also the reason why Hybrid powertrains are still manufactured in very special factory in Japan. For this new technology to grow on people, the zero-defects policy is essential. Limited sales also mean higher quality control. Now Honda's technology and production means for Hybrids may have matured enough so that they believe they can step up their game to the large scale.

DID I SAY MISTAKES?

Actually, this late thoughts made me reconsider my first remarks about "mistakes". Maybe Honda did not make any mistake, maybe they knew exactly what they were doing, and that's the reason why they have never expected huge hybrid sales on their line-up. Maybe the only ones expecting more and more were TOV readers and magazine guys.

Maybe they (Honda) were just trying to show people that the technology was completely transparent and that it could fit in their daily people's mover without notice. While at the same time, further developing their IMA system, and testing it in thousands of daily drivers for years, without having to spend lots of money in dedicated products that might not be justified in terms of sales numbers at that time.
Now, they think that both their technology and the public are ready for the next stage, and they go for it.

To me it all makes sense. Is just about smooth introduction of breakthrough technology in people's everyday life.


From a marketing perspective the HCH (Honda Civic Hybrid) not only suffers from competing with a very competent petrol Civic on features, performance, and other traditional car values, it also gives reviewers a chance to play the "fuel cost vs hybrid premium" game very easily. With a dedicated car like the Prius, Toyota avoids this. One cannot say exactly how much a Prius is going to save vs a non-hybrid version of the car. This new vehicle probably won't have that issue.

Going the dedicated route also gives Honda a chance to set this new hybrid apart from others on the market. Every hybrid program I've seen in the news is focused on building a mid-size vehicle. Examples include the Saturn Vue, Nissan Altima, Ford Fusion, etc. This new vehicle looks to be too small and inexpensive to be compared with the Prius or any of these other late-comers. Which is another marketing advantage.

It looks to me like Honda's original strategy was a tried and true one. They introduced the Insight (great name) with such superior mileage, it was supposed to make the masses say, "Holy crap." Even though it was never intended to sell very well. It would serve as something of a halo car for the more practical hybrids (HCH and HAH). This is not unlike what the NSX did for the Integra and Prelude.

This worked. The only problem was the masses said, "Holy crap... that's impractical," and the Prius stole the show. So the halo thing didn't work. And here we are now.

I think the mistake people make when looking at Honda's program is assuming it was meant to be a sales success. Honda can't buy enough batteries to produce more hybrids even if they wanted to accomplish that. Honda was looking to get their feet wet. They wanted to be among the leaders... get their name out there... try things out... learn about the technology... and get a feeling for the buyers. They were not looking to launch a new class of vehicles.

My guess is this dedicated hybrid is a result of what they've learned by taking things slowly at the start. With an annual target of 100,000 units in the US (the HCH averages a quarter of that) they are obviously serious about this one.


 
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