The biggest product launch of the year for Honda is at risk as the company struggles to roll out the new 2012 Civic.
Like its Japanese competitors, Honda has been hard-hit by the Japanese earthquake, tsunami and subsequent nuclear crisis, with production in the home market only set to resume next week. The good news for the maker is that nearly 90% of the vehicles it sells in North America are produced in the U.S. or Canada – but even those facilities are feeling the pinch, confirms Honda’s top American executive, in an exclusive interview with TheDetroitBureau.com.
“The situation is changing every day,” says American Honda Executive Vice President John Mendel. The worse part, he admits, is “We don’t know yet” the full extent of the parts shortages created by last month’s natural disaster. “The situation changes day-to-day. It’s very fluid,” Mendel says, adding that all Honda products use at least some components imported from the home market.
Some of the world’s largest electronic component suppliers were particular hard hit by the March 11 events, but there are plenty of other parts that could create problems if they aren’t available. “If you only lose the needle for a speedometer, can you still build your car?” asks Mendel.
Honda has already trimmed production at its so-called transplant assembly operations, some from 8 hours to 6 per shift, others cut to just 4 hours. But the maker has warned employees that full, if temporary shutdowns may follow.
That’s a particular problem considering Honda is just getting ready for the official launch of the all-new Civic, which begins a phased roll-out starting April 20th. One of the most popular products in the U.S. market, and a top-seller in the hotly competitive compact segment, the outgoing Civic has remained surprisingly popular even as it enters the end of its lifecycle, so Honda was counting on achieving a big send-off for the 2012 Civic.
Production of the new model began in North America back in January, so the maker expects to have from 10,000 to 12,000 of the 2012 compact in dealer lots at launch time. But considering Civic sales hit 30,000 last month, that’s not even a two-week supply.
So, considering the company’s production problems, “the backfill of the pipeline for the next 60 days will be difficult,” Mendel cautions.
That’s forcing the maker to rethink its marketing plans for the 2012 Civic.
“The emphasis may not be as big” as it would have been, the executive acknowledges, had Honda been assured of a steady supply of product. One of the worst mistakes a company can make, he says, is to stage a well-funded launch then find it didn’t actually have enough product in showrooms to meet demand.
One possibility is that Honda will “stretch it out,” over a longer timeframe than planned Mendel hints, though that could require a significant bump in the marketing budget for the Civic launch.
Industry analysts have been questioning whether a delayed roll-out of the new Civic might work against the brand. Art Spinella, chief analyst with CNW Marketing, has warned that the longer customers have to wait the more likely at least some customers will switch brands.
Mendel acknowledges that is a potential problem. “It’s a great time for consumers because there are more choices. Every (maker) has upped the ante.”
Ford, with the new Focus, Chevrolet, with the all-new Cruze, and Hyundai, with the redesigned Elantra, all hope to grab sales away from the compact segment’s market-leading Asian brands. And the parts shortage, some believe, could make that especially easy.
“There’s an inherent assumption,” Mendel emphasizes, “that we’re the only one affected” by the shortages. But that’s wrong, he adds. Indeed, GM had to close a plant in Louisiana for a week due to shortages. Ford and Chrysler have had to curtail orders for several paint colors depending on pigments from Japan. Toyota and Subaru have had to trim their own North American production schedules. And further cuts are expected by all makers in the weeks to come.
Nonetheless, Mendel concedes, it isn’t the ideal situation for Honda. The 2012 Civic is a critical offering and the smoother the launch goes the better.
