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Honda expanding in a big way

Marketplace Staff May 17, 2006

KAI RYSSDAL: The word of the day today from Honda is fuel efficiency. Or, more accurately, car buyers’ demand for it. That’s what’s behind the company’s announcement today. Honda’s expanding in a big way. A new assembly plant somewhere in the Midwest. New parts factories in Ohio and Georgia. And a Canadian engine plant, to boot. Given what we’re paying at the pumps, fuel efficiency is a good way to get headlines. But Marketplace’s Steve Tripoli reports there’s more to Honda’s timing than gas prices.

STEVE TRIPOLI: High-mileage cars are just one reason Honda’s confident about expanding now. Analyst Catherine Madden of Global Insight says Honda has other aces in its deck. A reputation for quality, price and resale value among them. Madden says Honda’s $5 billion dollar investment splurge has to be scary for U.S. automakers.

CATHERINE MADDEN:“Unfortunately for, particularly Ford and General Motors it doesn’t bode well.”

That’s because those carmakers aren’t in a position to match the expansion spree. Madden says the US carmakers’ retrenchment helped give Honda its opening.

MADDEN:“So I think it’s an opportunity for them to go after more market share in North America and, no doubt, as gas prices continue to creep higher there will be some consumers who favor a vehicle that gets better gas mileage.”

J.D. Power analyst Matt Vicenzi say gas prices really aren’t high enough yet to drive a big swing in car buying behavior. Vicenzi says that tipping point could come.

MATT VICENZI:“Our flash point right now is gas prices would have to reach three dollars and fifty cents a gallon, and be expected to stay there for an extended period of time.”

But that’s not what he or most others are predicting.

Vicenzi says Detroit still has a few cards up its sleeve. It has its own high-mileage fleet, people like the new smaller SUV’s, and the luxury market’s unfazed. But he says US carmakers had to yield something to rising competitors.

VICENZI:“The Big 3 traditionally have held an unsustainable market share, and as new automakers come into the market they’re naturally, as competition heats up, going to take some of that market share.”

So think of today’s announcement as Honda just trying to tip the competitive scales a little more.

I’m Steve Tripoli for Marketplace.

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