Losing its Cool? Rival automakers making dent in Honda's hold on younger crowd
MARK RECHTIN | Automotive News
Posted Date: 11/1/04
LOS ANGELES -- Chilling out with a dozen other Scion tC coupe owners on the cliffs of suburban San Pedro, 27-year-old Mike Bittner holds court.

Bittner is impressing his fellow ScionLife club members with the car's custom leather seats and blue neon lighting in the engine bay. He then shows off a low-budget performance hack: Popping out the fog lamp blanks creates an impromptu "ram air" system for the engine. It is clear Bittner is a true believer, a coveted customer for automakers.

Asked why he picked a car by Toyota's nascent youth brand over a Honda, Bittner is blunt: "I don't baby cars, and Honda doesn't care about its customers. I'd never buy a Honda."

Others quickly chime in.

Phillip Kang, a 26-year old database engineer from Alhambra, Calif., unloaded his 2001 Civic onto his parents when he ordered his $17,500 Scion in May.

"I wanted something with the same price range as the Civic but with more features," Kang says. "Everyone thinks this car costs $25,000. It's like an Infiniti G35 coupe, but it cost half as much."

This gaggle of Scion owners is not a rare exception. At a drifting event last year at Los Angeles' Irwindale Speedway, thousands of young import-brand racing fans lustily booed the Honda name when it was mentioned over the loudspeaker.

Since the early 1990s, the Honda Civic has been the car of cool kids and the aftermarket companies that feed the fever for go-fast parts. Today, rival automakers are building vehicles directed at the younger crowd, and they are making a dent.

The compact car segment is crucial. It accounts for 14.1 percent of the light-vehicle market, according to J.D. Power and Associates. Many of those buyers are under 35 years old, an age when long-term loyalties can be cemented.

To be sure, while vehicles such as the Scions and Mazda3 have made inroads in Honda's dominance, Honda remains the king. Honda sells more Civics than Volkswagen, Mitsubishi and Mazda sell total vehicles. On a five-mile drive back from the Scion gathering, a reporter spotted six Civics driven by apparent Gen Y members.

But change is in the air.

Gen X vs. Gen Y

The tuner kids of Generation X - born between 1965 and 1981 - made the Honda Civic the must-have compact car during the 1990s. They also helped propel the brand into its volume spiral. As those buyers have aged, Honda has provided them with larger, more mainstream products to fit their needs.

Even the youth-targeted Element has a median buyer age in the 40s, well older than the desired target.

Honda's inability to attract Bittner and other Generation Y buyers could be an indicator of a larger movement away from Honda products by young consumers. For instance, Mazda's crisply executed Mazda3 has a median buyer age of 34, a huge drop from the predecessor Protege's 42-year-old median.

Another indicator: As an increasing number of credible vehicles enter the market, aftermarket tuner-parts vendors have begun to take their "compact performance" business to brands besides Honda.

According to the Specialty Equipment Market Association, compact-car retail parts sales by aftermarket companies have skyrocketed to $3.2 billion in 2003, up from $295 million in 1997.

Civic sales off

It would seem that Honda should have little to worry about. The brand is one of the strongest in the industry. Every model launch of late has been solid, and sales and market share are increasing despite having few incentives. Honda by far still has the dominant share of young buyers compared with other brands, according to several market research firms.

But sometimes it is possible to be too popular.

Some younger buyers surveyed said they chose another brand because it wasn't a Honda.

Says Scion Vice President Jim Farley: "The youth market is all about personalization and specialization. "When you're trying to sell 120,000 Civic coupes a year, how can you do that?"

Last year was the first time since 1996 that Honda did not break 300,000 Civic sales. Even with unheard-of dealer cash incentives tacked on the Civic, sales were flat through September.

Allocating resources

Thomas Elliott, American Honda executive vice president, fiercely defends the Civic's success rate with young buyers.

He says that 41 percent of Civic buyers are under 35, a better youth ratio from a larger sales base than any compact car. The Civic also has a strong penetration into the trend-setting Asian, Hispanic and black markets.

But in broadening its product line, development of youth-oriented products has suffered, Elliott admits.

"We have been putting our priorities into light trucks, and that does not leave a lot of room for niches," he says. "Has it taxed our abilities to address other markets? Yes, it has."

Elliott has hopes for the next-generation Civic, which he calls "a higher-level car." While retaining its size, he says the 2006 Civic will have more refinement, detail and product content. In short, he says, "What they've been missing the last few years."

In the closest admission anyone at Honda will make to the current Civic not hitting the bull's-eye, Elliott says, "The Civic is doing its job. Can we do a better job? No question."

The next Civic platform also could spawn niche-oriented body styles or powertrain options that would cater to young buyers, he says.

Filling in underneath the upscale Civic will be an Americanized version of the Fit subcompact, which is sold in Japan.

"We are not looking for the marginal buyer," Elliott says. "It will be the high end of the low end."

But some analysts say that Honda may be moving too late.

Honda blundered in making the 2001 Civic and 2003 Civic Si redesigns too bland and offending aftermarket tuners with a lesser suspension system, analysts claim. Also, while the Element is wildly exceeding sales expectations, it is priced out of the reach of most young buyers.

Lincoln Merrihew, analyst with Compete Automotive in Boston, says that most Element shoppers already were looking at Hondas and were not the first-time buyers Honda sought.

Window shopping

In 2003 and 2004, Honda was the No. 1 response to the topic, "definitely will consider buying the brand the next time," in a survey of under-25 car buyers completed by consultancy Strategic Vision of Vista, Calif.

But something happened when young shoppers entered the showroom, says Dan Gorrell, Strategic Vision vice president.

"While Honda is in the hearts of the youth, the company isn't necessarily providing vehicles - for the price, styling and performance and image - that resonate with that group," Gorrell says.

Doug Scott, industry analyst with Allison-Fisher International, echoes that sentiment: "The picture of Honda that (young shoppers) have in their minds may get interrupted when they get into the showroom."

Another indicator: Aftermarket consumers want go-fast parts for import brands other than Honda - once the industry darling. Those who customize their vehicles typically are trendsetters in their peer group. To see them moving away from Honda could be a sign of a larger future move.

Greg Neuwirth, president of engine tweaker AEM Inc. in Hawthorne, Calif., says that Honda parts have skidded from 80 percent of his business to about 55 percent in just three years.

This year, when AEM bought DC Sports of Corona, Calif., all that DC built were parts for Hondas. Already, that has been shaved to about 75 percent.

"The 2001 Civic was a mainstream sedan," Neuwirth says. "With the old Civic, we couldn't keep parts on the shelves. With the new one, the parts sell, and it's nothing to sneeze at. But it's nothing like we used to see."

"It hasn't been one competitor taking a big chunk, but a combination," he said. "Everybody woke up."

Phillip Kang, a 26-year old database engineer from Alhambra, Calif., unloaded his 2001 Civic onto his parents when he ordered his $17,500 Scion in May.

"I wanted something with the same price range as the Civic but with more features," Kang says. "Everyone thinks this car costs $25,000. It's like an Infiniti G35 coupe, but it cost half as much."

Last year was the first time since 1996 that Honda did not break 300,000 Civic sales. Even with unheard-of dealer cash incentives tacked on the Civic, sales were flat through September.