Honda's U.S. sales growth is slower than the industry average. Where will it be next year?

Our sales are slightly below our initial expectations. But for next year we will have help from the new Odyssey, an incredibly strong product [which launched this fall in the United States]. The biggest reason our sales are slightly behind is due to the good growth of Hyundai, especially the Sonata. To counter that, we have plans to make the Accord and Civic far more attractive. So for next year, we should be able to get sales growth above the market average.



Has the traditional rivalry between the Honda Accord and Toyota Camry turned into a three-horse race with the Hyundai Sonata?

It has become a competitor.



What models do you see delivering the biggest U.S. sales growth?

The segment that's showing relatively good growth is the light-truck category. And under those circumstances, we are introducing the highly competitive new Odyssey, for which I have high expectations.

The styling looks really sharp. And it comes equipped with a 6-speed automatic transmission and our original cylinder deactivation system, which is a big contributor to fuel efficiency and has been further refined. So it combines good driving, good fuel efficiency and good looks. And this has all been developed in the United States by Americans for the American market. I'm very confident that with the Odyssey, we've come out with a good car at the right time.



What about small cars? Are Americans ready to buy them?

With overall demand in such severe shape, it has become difficult to forecast how acceptable the market finds small cars. But if you look from a long-term perspective, demand for small cars -- in our case, the Fit class -- will grow. But it may take some time.


Does that apply to hybrids as well? Sales have been sluggish this year.

Although American people talk about fuel economy, they are sensitive to the price of gasoline. They have the natural tendency to like something big and powerful. Therefore, my impression is that demand for technologies specializing in fuel economy, such as hybrid vehicles, would be impacted by the fuel price.

However, in the long run, we must reduce carbon dioxide, and we must increase the attractiveness of products, and hybrid technology has great potential here. Hybrid is a very good technology to make the vehicle more powerful and to increase fuel economy. I think it is important for us to continue refining our hybrid technologies patiently so that we can prepare even better products with more affordability.



What are you doing to make Honda's hybrids more attractive?

We developed a simple one-motor hybrid system called IMA. The key to the success of IMA is how simple it is, how low the cost can be and how it can be made a natural part of the vehicle's system. I want to grow this technology as the most efficient, in terms of return on investment, and a technology to improve fuel economy.

We are also developing a hybrid system for larger-size vehicles with a goal to make it contribute not only to fuel economy but to the attractiveness of the products. The concept for this hybrid is significantly different.



You are introducing the larger hybrid system in 2012. What percentage of your global sales volume will be hybrid vehicles by 2015?

Maybe around 10 percent by 2015. Even after the bigger hybrids, sales aren't going to grow exponentially. The conventional gasoline engine will remain the mainstream. The volume for large-sized vehicles is not so large to begin with, so applying hybrid there won't bring about major change. The small-sized IMA system will remain the contributing factor.

If you look to 2015, I don't think there will be that much of an impact from rising fuel prices or more stringent regulations. But by around 2020, the social situation surrounding the market may be different, and probably carbon dioxide regulations will be made even more stringent.



How big is a big hybrid in Honda's view?

A hybrid system suitable for the class of vehicle equipped with a V-6 engine is called large size. Obviously, we will further advance the conventional V-6-equipped vehicles for more power and fuel efficiency. But by adding a hybrid model, we will add a more powerful and more fuel-efficient option.



Honda also plans to overhaul its gasoline engine and transmission lineup starting in 2012. What are the key improvements?

Our products must impress customers with great engines, and thus, that is how we are developing our vehicles. But we are not ready to unveil what we are doing. It is a fact that we are accelerating the development of hybrid technology, where we were slightly behind, because it is a must-have item for the next era. However, hybrid sales will probably be only 10% of sales by 2015. Therefore, there is no doubt that the advancement of the conventional engine is important for our business.



What are your plans for positioning the Acura brand?

We are having a lot of discussions about Acura and which way it should be going. And what we confirmed is that the brand direction should be smart premium, not top tier.

Among the technologies we have at Honda, we must apply those that symbolize our advanced performance technology and environmental technology. We call this "smart." We agreed that smart premium is what we should be targeting with Acura, not the upper-segment vehicles such as Lexus or Mercedes-Benz. We must apply advanced technologies which make our vehicle more fun to drive, achieve a more comfortable drive and high environmental performance.



How is the stronger yen affecting Honda, and what are you doing?

The best risk-hedging approach is to establish a business structure focused not only on the United States and Japan but also on utilizing other production sites worldwide, meaning the rest of Asia, China, South America and other areas. Build a system where all those production sites complement each other with some of their local specialty products and locally sold products.

When you think foreign exchange rates, you need to take into consideration the yuan vs. the yen, the yen vs. the dollar, the baht vs. the dollar and so on. Traditionally, we have been concerned mostly with the U.S. dollar vs. the yen. But the proportional weight of those transactions in our global sales volume is getting lower.



Does that mean you might be importing more vehicles or components to Japan?

We have no definitive plans to do that, but we have imported vehicles before. About 15 years ago, we imported the Accord wagon from the United States. This was not due to foreign exchange considerations. It was done more to complement local products.

None of our plants has recovered to full production since the Lehman Brothers collapse and global financial crisis. The U.S. plants are probably at around 80 percent of capacity. Japan is probably around 70% to 80%. The same applies to other production sites in Asia except for China, which is operating close to full capacity.

Since the financial crisis, none of the sites have been overwhelmed by demand in excess of their capacity. Depending on how the foreign exchange situation continues, it is possible that we could import cars into Japan. This is nothing new to us. We have done this in the past.



What adjustments do you see in your U.S. production footprint in the near term?

The foreign exchange situation has the potential to change very dramatically, when we least expect it. It is very difficult to deal with. Currently, both Japan and the United States have excess production capacity. So if the foreign currency situation continues like this, there is a possibility that there could be a gradual shift of production to the United States. But I have no intention to bring about any sudden, dramatic changes.

What may be possible, for example, is this: We now produce the Accord in Japan and export some to the United States and other countries. But perhaps the portion that is going to other countries may eventually be sourced from the United States. That's something we are thinking about. It would also be good for the United States.



What change would you most like to see in the U.S. dealer network?

We have a good, strong U.S. dealer network, so I'm not thinking of changing anything specifically for 2011, 2012. What's most important is finding out and taking in what U.S. customers really find attractive in products, be it affordability or other features. We need to reinforce that in the early stage and build that into our products to further strengthen our brand identity. That is our 1st priority.

You can reach Hans Greimel at hgreimel@crain.com.