Honda (NYSE: HMC) is being appropriately praised for building its model line around fuel-efficient cars, as it has for years. According to The New York Times, "No major automaker in America is doing better than Honda, whose sales are up 3 percent for the first seven months of this year in a market that has fallen 11 percent."
Honda did not make big money on SUVs when they were the profitable sector of the market. Now, it is not taking huge losses and has net income that is the envy of Detroit.. But its strategy may be short-sighted, especially outside the U.S.
There is plenty of evidence that SUVs are extremely popular in China, the world's second largest car market. The vehicles also do well in the Middle East and some parts of Latin America. As gas prices increase, so does the temptation for governments in large nations to underwrite the cost of gas as is already the case in China. Because of this kind of policy, oil prices may stay high, but gas prices could drop.
Honda's long-term plan to be the provider of the cars that use the least gas may look good now, but petrol prices could swing down again. Then the company may not look so brilliant.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
8-26-2008 @ 11:38AM
Ed said...
Honda makes some of the best, and most fuel efficient cars in the world. How can anyone say that demand will drop, regardless of the price of gas? Their SUV's are also very popular. If gas prices come down, their sales will go back up. Waaay too many "soccer moms" out there still want their vans!
8-26-2008 @ 12:25PM
Lauren Rudd said...
This is a ridiculously stupid column. To advocate large inefficient vehicles on the premise that gasoline prices might fall is an insult to companies trying to offer efficient environmentally friendly products.
8-26-2008 @ 1:58PM
KenC said...
SUVs are NOT "extremely popular" in China. You recall, the first successful automotive joint venture in China was Beijing Jeep, which made Cherokees. Well, that was the height of SUV popularity in China, and that was over a decade ago. Buick Lucernes are far more popular than SUVs.
8-28-2008 @ 1:58AM
Owen Zhang said...
Please spend a few minutes to do some research before making up arguments. In China, Honda is one of the best positioned automakers. It currently sells the Accord, Odyssey, Civic, Fit, City and the CR-V. The CR-V in particular has been the second best selling SUV in China since it released the ’07 model. Different from the models in the U.S., here in China Honda sells both the 2.4 model and a 2.0 model which are more suitable for the current market. You also mentioned that gas prices in China are subsidized. That is correct, but even so the gas prices have been increasing since China is a net importer of oil, sooner or later it has to be in line with the world market. The current gas prices in China are over 6rmb/liter. Which is about $3.8USD per gallon (almost the same as the U.S.) I have read a few idiotic columns in bloggingstocks during the past few months, and Douglas McIntyre’s postings tend to always earn a top spot.