Time to Simplify Trim Choices, Honda Says

Date: May 13, 2019
Source: Automotive News
TOKYO -- Click Honda’s online configurator for the Civic and you will enter a rabbit hole of options. For the sedan alone, there are LX, Sport, EX, EX-L and Touring trims, as well as the sporty Si.
 
That plethora of choices may be great for consumers, but not so much for the automaker. Honda Motor Co. CEO Takahiro Hachigo said last week that complicated vehicle configurations are sapping the company’s resources from both development and manufacturing.
 
Hachigo now says it is time to simplify.
 
The CEO said Honda will slash the number of trim and option variations to a third of their current level by 2025 across its worldwide lineup.
 
How complicated has it gotten for Honda? Consider the Civic Touring sedan.
 
That model has three choices of 18-inch alloy wheels, then three choices of wheel decals: blue, green or red. Inside, customers have their pick from four interior panel trims: black, blue, green or red. Top that off with four options for cabin illumination.
 
Reducing choices is just one of a string of overhauls Honda announced in a strategy shakeup as it races to rein in costs, streamline its manufacturing and free up r&d resources to compete in new segments and technologies.
 
Despite its big presence in the U.S., Honda is a midsize player on the global field. Like its rivals, Honda hopes to maximize resources to invest in next-generation technologies covering everything from electrification to autonomous driving.
 
“As we were growing in the U.S., our variants have also increased, which has worsened our efficiency,” Hachigo said at a press conference last week where Honda announced a 13 percent decline in parent-company operating profit for the fiscal year ending March 31.
 
“The number of models for production and the processes involved in development will be streamlined,” he declared. “Therefore, we can get resources for future technology development.”
 
Other key elements of Hachigo’s new strategy:
 
  • Consolidate some models that are unique to certain markets into models that can be shared in other markets.
  • Boost global factory utilization to 100 percent by 2022, up from 90 percent last year.
  • Cut global production costs 10 percent by 2025, compared with 2018 levels.
  • Debut a new vehicle architecture next year that bolsters component commonization.
  • Reduce by 30 percent the number of employee hours required to develop production vehicles.
 
In showrooms, the immediate upshot will be less complexity in customizing cars. Hachigo said he has no intention of eliminating nameplates, just the number of trim options. He said Honda does not expect to lose sales by narrowing the array.
 
“Compared with other manufacturers, Honda tends to have a higher number of variants,” Hachigo said. “We want to focus on the variations that are really needed by consumers. In the end, everyone agreed we have too many variants. “
 
He cited control panel color combinations as one target in Honda’s push to simplify, which will affect its five global nameplates: the Civic, Accord, Fit, CR-V and HR-V.
 
New Architecture
 
The company’s direction will become clear next year with a new model built on a platform the company is calling Honda Architecture. Hachigo said the goal is to commonize about 70 percent of the components not seen by customers, such as those in the engine compartment, passenger cabin and rear.
 
The differentiation will be in the vehicle’s outer shell.
 
One benefit of the new architecture will be simplified assembly and parts procurement. Honda will re-evaluate model allocation across its plants, including those in North America, in a push to reach full capacity utilization by 2022 and to cut factory costs 10 percent by 2025.
 
“For our business in North America, while keeping pace with sales expansion, we enhanced our model lineup and established a flexible production system where our plants sometimes produce various models in duplication to accommodate changes in market demand,” Hachigo said.
 
But he said the pursuit of high flexibility -- and the associated increase in investment -- has started to become an issue for the company.
 
Honda believes that it can reduce the amount of work that goes into developing its vehicles, and shift those hours into r&d for next-generation technologies -- much of it going into electrified vehicles. Honda wants to electrify two-thirds of its global lineup by 2030 and achieve 100 percent electrification in Europe by 2025.
 
Hybrid Parity
 
Hachigo said last week that Honda will deploy its two-motor i-MMD, or Intelligent Multi-Mode Drive, hybrid system to all Honda vehicles.
 
By 2022, Honda wants to reduce the cost of the i-MMD system by 25 percent, compared with 2018 levels. The goal is to eventually achieve cost and profit parity with gasoline engines.
 
Rising costs are propelling Honda’s decisions. The company reported last week that its operating profit declined 13 percent for the fiscal year ending March 31, on foreign exchange losses, rising incentives and one-time costs to restructure its European business, even as global sales increased 2.5 percent to 5.3 million vehicles.
 
Net income tumbled 42 percent to ¥610.3 billion ($5.51 billion) for the year. Unfavorable foreign exchange rates lopped $1.45 billion off the year’s operating profit.
 
Rising selling expenses took another bite. In the January-March period, average incentive spending on Honda and Acura brand cars by American Honda Motor Co. increased 34 percent -- and that still left Honda’s offerings about $1,310 below the industry average of $3,574 per vehicle, according to figures from Autodata Corp. Average industry outlays for incentives declined 4.6 percent in the quarter.
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