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Honda throws US$1b lifeline to Acura

Honda will try to restore Acura's credibility as a technology leader in the US to emerge from the near-luxury bargain basement

PUBLISHED : Wednesday, 27 February, 2013, 12:00am
UPDATED : Wednesday, 27 February, 2013, 4:39am

Acura's future was so dire four years ago that Honda Motor began killing models and choking off product development. Now, the carmaker is putting US$1 billion into its luxury brand, a perennial also-ran to Toyota Motor's Lexus line.

Honda's latest attempt to give Acura purpose is a parade of new products, including the flagship RLX sedan, an MDX sport wagon and the return of the NSX super sports car, priced above US$100,000. Its goal is to tailor Acura to the tastes of the US buyers it covets.

The product push this year comes after Acura's US sales have fallen 25 per cent from a peak of 209,610 in 2005.

Although Honda was the first Japanese carmaker to sell a luxury car in the United States, Acura never reached the peaks of Toyota's Lexus line, the top-selling luxury brand in the country from 2000 to 2011. And Acura has never captured the cachet of German luxury cars, forcing Honda to sell its upscale models on the cheap.

"[Acura's] biggest negative is we are known as a value company in the premium space," Mike Accavitti, Honda's US marketing chief, said last month. "What we have to do from a marketing perspective is ramp up the emotional element."

Acura's biggest negative is we are known as a value company in the premium space. What we have to do from a marketing perspective is ramp up the emotional element

Honda's effort to elevate Acura shows how important - and competitive - the luxury segment has become for carmakers worldwide. Luxury sales have increased as the US economy has improved and upscale cars provide generous profits and prestige that serve as a halo over a carmaker's entire model line.

Luxury cars accounted for 12 per cent of global sales, "but are almost 50 per cent of industry profits", Johan de Nysschen, president of Nissan Motor's Infiniti luxury line, said last month.

Honda has jumped 50 per cent since November 14 as the yen has weakened. Even so, investors are willing to pay a smaller premium for Honda's revenue compared with BMW's sales than they have for most of the past decade.

Four years ago, Honda's then president, Takeo Fukui, reviewed the expansion plans for its lagging luxury line. At the time, Acura's US sales were plunging by almost half, to 105,723 in 2009, as the recession ravaged car sales.

So Fukui took a red pen to Acura's budget. He scrapped plans to create an Acura dealer network in Japan. He killed development of a new NSX model with a massive V-10 engine. He also cancelled plans to emulate German luxury cars by outfitting Acuras with V-8 engines and rear-wheel-drive vehicle platforms.

Now, Honda is turning in a different direction from its German competitors. Acura will not chase the money in emerging markets such as China. Instead, it will try to restore Acura's credibility as a technology leader in the US and finally emerge from the near-luxury bargain basement.

Honda, known for efficient product development, was overhauling Acura's line-up for what some carmakers could spend on one model, said Rebecca Lindland, a consultant with Rebel Three Media & Consultants.

"If they can revamp the line-up for US$1 billion, that's money well spent," Lindland said.

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