Honda Prepares Fight for Hybrid Market

Dec. 21, 2007: Source – BusinessWeek

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In a year-end speech in Tokyo, Honda President Takeo Fukui said that his company will chase down Toyota’s substantial lead in the hybrid vehicle segment. He asserted that Honda will more aggressively invest in hybrid technologies in order to compete with the juggernaut that Toyota has become. “The competition in hybrids has just begun," Fukui stated.

Honda, Japan’s second largest automaker, will bring to market a new and more affordable small hybrid car in 2009, with a sales target of 200,000 vehicles annually. Honda also aims to boost its overall hybrid offerings so that the segment makes up 10 percent of the company’s sales by 2010. That equates to more than 400,000 annual hybrid sales—a very aggressive target.

Honda’s presence in the hybrid market has slipped in recent years. The company introduced the Honda Insight to the U.S. market in late 1999, the first hybrid available to American carbuyers. The two-seater was discontinued in 2006, due to low sales. The Honda Accord Hybrid, a gas-electric version of Honda’s popular family sedan, suffered the same fate in 2007.

Toyota, on the other had, has experienced phenomenal success with the Prius. Since its debut in 1997, nearly one million Priuses have been sold worldwide. And sales are still going strong. Toyota’s hybrid portfolio also includes the Camry hybrid, the Highlander Hybrid—the best selling hybrid SUV—and hybrid models offered under the Lexus brand. General Motors is beginning to establish a presence in the hybrid market, but is approximately one decade behind its Japanese competitors. Ford entered the hybrid market in 2004, with the Ford Escape Hybrid, but has since backed off from well-publicized hybrid sales targets.

To claim a bigger piece of the hybrid market, Honda will need to expand its offerings beyond the Civic Hybrid, the company’s single remaining hybrid. Fukui hopes that Honda’s new small hybrid-only model, due in 2009, will lead the way for the company. Fukui said Honda’s hybrid system will cost less than Toyota’s system, allowing Honda to lower the cost of entry to hybrid buyers. The company has not yet announced exact pricing.

Honda is also putting $425 million into a new research center in Japan, dedicated to the development of hybrid vehicles and other alternative technologies, such as hydrogen fuel cells. The center will be fully operational by 2010.

Challenging Toyota’s lead in hybrids is a large undertaking, but among global automakers, Honda is in second place—albeit a distant second—behind Toyota in putting hybrids on the road, manufacturing multiple models in significant volume, and learning the hard way what consumers want and don’t want.

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