Honda in a Hurry

By Stephen Koepp.

What is the No. 1 foreign auto in the U.S.? Since 1975 the titleholder has been Japan's Toyota, but maybe not for much longer. After a dingdong sales battle, auto-industry experts forecast that by year's end, U.S. car buyers will have crowned another best-selling make. The new champion: Honda, a product from a company that little more than a decade ago was more famous for its motorcycles and motor scooters than for its automobiles. The spunky Japanese car manufacturer, which sold only 9,500 cars in the U.S. during its first season in 1971, expects to sell 650,000 in 1986, nearly 6% of the 11 million-vehicle U.S. auto market. Toyota, by contrast, plans to sell 630,000 cars, along with 370,000 trucks, a market Honda has yet to enter.

Honda's rapid acceleration is significant not only for buyers of foreign cars but for the domestic U.S. auto industry, which is expected to produce about 8.7 million cars this year. At a time when American auto firms are fighting hard to regain ground lost earlier to Japanese and other foreign manufacturers, Honda has established a strong U.S. foothold with its shrewd decision in 1977 to build an assembly plant in Marysville, Ohio. Honda's expansion is also a sign that Japanese manufacturers are gearing up their competitive engines to maintain and enlarge their market share.

Detroit's Big Three -- General Motors, Ford and Chrysler -- clearly feel the competition. So far this year, the companies have sold a total of 4.9 million autos, a 3% decline from 1985. In the past few weeks Ford has engineered a sharp sales upturn, thanks partly to the sudden popularity of its futuristically styled Taurus and Sable vehicles. But GM has a troublesome surplus of more than 1 million unsold 1986-model cars and trucks. In a bid to shrink its swollen inventory, GM late last week postponed the roll-out of its 1987 models, from Sept. 25 to Oct. 9, and announced some dramatic come-ons. The automaker will offer customers a choice of two new incentives: new-car loans at rates as low as 2.9%, or rebates ranging from $300 to $1,500. The bargains will last until Oct. 8. Chrysler followed with a 2.4% loan offer, and Ford matched GM's 2.9% deal.

The national and international rivalry may bring car shoppers lower prices and a better selection of products, but it also threatens to put an ugly dent in Detroit's profit statements. Honda's sudden rise is an indication of how tough the renewed competition will be. The company has added a formidable new reputation for quality automaking to the traditional Japanese manufacturing virtues of durability, faithful service and moderate prices. This year a survey of more than 23,000 buyers of 1985 cars in the U.S. by J.D. Power & Associates, a California consulting firm, showed that Honda enjoyed the country's highest customer-satisfaction rating, edging out even luxurious Mercedes-Benz. The latest manifestation of Honda's vaulting ambitions is its bold entry into the U.S. luxury-car market. Well established in the so-called yuppie market with its comfortable Accord, the company takes aim with its latest entry, the Acura, at such upscale trademarks as BMW and Saab.

In all, it is a heady time indeed for a firm that Merrill Lynch, the brokerage house, calls "one of the most unusual and creative of all Japanese industrial concerns." Started with 20 employees in 1948 by an inventive garage mechanic, Soichiro Honda (now 79 and retired), the company took only twelve years to claim the title of the world's leading motorcycle and motor- scooter maker. Honda introduced its first car in the Japanese market in 1963, and now manufactures an array of products that range from outboard motors to snowblowers and lawn mowers. Its profits zoomed to a record $532 million in 1985, up 32% from the previous year, on sales of nearly $10.8 billion.

Honda started carving out its share of the U.S. auto market during the energy-short 1970s. One of its first models, the tiny Civic, which was introduced in 1973, posted fuel efficiency of 29 m.p.g. and sold for as little as $2,150 (current base price: $5,749). The company soon broadened its demographic appeal by introducing the larger, upscale Accord (currently $9,389) in 1976 and the Prelude ($11,592) in 1979. Intense demand for the cars prompted Honda's serendipitous decision to construct its pioneering Ohio plant, a complex now capable of producing 220,000 autos annually. The factory, built alongside a Honda motorcycle plant, began producing autos in 1982, just a year after Japan agreed to accept voluntary quotas on its auto exports to the U.S. The ceiling has been gradually lifted, from 1.68 million vehicles a year in 1981 to 2.3 million currently. But in the interim, the Marysville venture enabled Honda to rapidly expand its American sales far beyond its individual export limit, which in 1985 amounted to just 400,000 cars a year.

Honda's rivals are only beginning to catch up. Nissan began building autos last year in Smyrna, Tenn., and Toyota is constructing a plant in Georgetown, Ky., that will start assembling vehicles in 1988. But Honda is not standing still either. The automaker began building engines at a separate plant near Marysville in July 1985. It is now gearing up a second Marysville assembly line that will increase the factory's U.S. production to 360,000 cars annually.

Honda owes its jackrabbit start in the U.S. market at least partly to a corporate culture that fosters flexibility and innovation. The company operates with an openness that is rare in the world of Japanese business, where consensus and conformity are the rule. To boost communication, Honda has done away with executive lunch rooms and private offices. At Marysville, for example, egalitarianism prevails: all Honda employees, right up to Shoichiro Irimajiri, president of Honda's American manufacturing division, wear white coveralls with their names stitched in red lettering above the right breast pocket.

Honda's Marysville operations are helping to revolutionize the way that American autoworkers view their jobs. The 3,263 workers at the plant are divided into only two job classifications -- assembly and maintenance -- compared with as many as 100 in some unionized U.S. factories. This leaves Honda workers free to perform many different functions, as dictated by the ebb and flow of the assembly line. While their $12.25 hourly wage is about $1 below the United Auto Workers average, employees and their families enjoy unusual benefits, including access to the company's gym and pool.

The U.A.W. has so far been unsuccessful in its attempts to unionize the Honda plant. A few workers at Marysville complain about the company's "almost military" adherence to schedules and procedures. But, says Roger Hammonds, a 41-year-old production coordinator, "this is the best place I've ever worked. It's the kind of job we idealized in high school. The philosophy, the job satisfaction -- it never came true for me until I came to work for Honda."

Honda's obsession with quality is famed. Auto-industry experts point to the company's knack for designing compact, reliable engines, a legacy of its long experience with motorcycles. Honda quickly corrected a few problems on its early auto models, notably rust-prone bumpers and fenders on early Civics, and brakes that tended to fade on the first Accords. J. David Power, head of the California consulting firm that bears his name, lauds Honda's attention to owners' needs in designing its cars. He recalls one Honda design team that spent several days at a California shopping mall interviewing drivers as they loaded bags into their cars. Their investigations paid off in the redesigned Civic hatchback of 1983.

The Acura model line is one of Honda's boldest gambits. Honda has tried to give the car an upscale image by insisting that dealers for the new model keep their showrooms several miles away from regular Honda outlets. The Acura Legend, a sedan slightly bigger and more powerful than the Mercedes-Benz 190, sells in the U.S. for $19,000, around $10,000 less than the Mercedes, and has % been greeted with rave notices by U.S. auto reviewers. The Legend's smaller, sportier cousin, the Integra, is priced in the U.S. at $12,000.

The road ahead for Honda may become treacherous as competitors begin offering greater financial lures and slick new models. Most auto experts, however, consider that the upstart has now established itself as the kind of contender that much bigger U.S. automakers would do well to watch closely. One reason for keeping a close eye on the feisty company could be seen last September when Marysville changed over from building 1985 Accords to the 1986 model, a process that required a near total retooling of the assembly line. In many U.S.-owned plants, such a changeover can consume several days, even weeks, of costly downtime. At Marysville, the switch was made in a matter of minutes without any loss of Honda's burgeoning production.

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With reporting by William J. Mitchell/Detroit and Edwin M. Reingold/Tokyo