Everyone thinks passenger cars are dying in the US auto market - but Honda disagrees
- Passenger cars have been losing out to SUVs and pickups in a US market that has seen four straight years of booming sales.
- But Honda, long a passenger-car sales leader in the US, hasn't given up on sedans.
- Honda's commitment to vehicles such as the top-selling Civic is stronger that ever, as the company stressed in a presentation shared with Business Insider.
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The passenger car is dead! We've entered the era of the SUV and pickup truck!
You hear this all the time if you pay attention to sales trends in the US auto market. A few years back, the late Sergio Marchionne, then CEO of Fiat Chrysler Automobiles, said aloud what everybody was thinking: a "structural shift" is underway, with traditional four-doors losing out to a new wave of crossover SUVs and pickup trucks.
Soon, other major auto executives began to echo Marchionne's thinking. Ford followed FCA's lead by winding down its US car portfolio, and General Motors started to acknowledge the pressure, too. Modern crossovers - hybrids of cars and SUVs - don't require the tradeoffs in comfort and fuel economy that plagued SUVs in the 1990s.
But at least one manufacturer isn't prepared to bail on passenger cars: Honda.
And Honda isn't backing away from touting its passenger-car leadership ("passenger car" is an industry term for vehicles that aren't SUVs. crossovers, pickups).
The company shared a presentation with Business Insider in which it detailed its strength in this allegedly flagging segment. The company holds a nearly 18% share of the US passenger car market, with its Civic model doing the heavy lifting.
Can't beat the Honda Civic
Basing its analysis on retail consumer sales (versus wholesale data to dealers), Honda noted that Civic has been both the top-selling passenger car in America for the past three years and has outsold every SUV and crossover in the market, save the Toyota RAV4 - and Honda's own compact crossover, the CR-V. (The data excluded full-size pickups, which typically dominate overall vehicle sales in the US.)
When Marchionne was outlining his views on passenger cars in the US, he pointed out that Honda and Toyota could be the only automakers capable of building sustainable businesses with sedans. His comments were essentially strategic: for FCA to maximize profits, it needed to organize its manufacturing footprint to favor SUVs and pickups, and to spend accordingly to promote those vehicles. Bolstering passenger-car sales would undermine that objective.
Passenger cars are, on balance, less profitable than SUVs and pickups. However, Honda has been able to close the gap by selling Civics and Accords in volume, for decades (automakers don't disclose profit margins on individual vehicles, but mass-market sedans typically bring in less than 10%). Honda in particular is also well-known for holding the line on pricing at dealerships, declining to discount models by offering big incentives.
Read more: Tesla's business is a mess - but it's actually not that much different from every other car company
Honda isn't resting on its success
Although crossovers such as the CR-V and RAV-4 increasingly become popular first vehicles for younger buyers, cars like the Civic can still be had for around $20,000 new. And Honda said that from 2016-2018, Civic saw 400,000 repeat buyers, making its owners difficult for other brands to "conquest," in industry parlance. Honda also boasts the highest stats for first-time buyers: 14% choose the brand.
The combination of price, reliability, and fuel-economy has always been major pluses for Civic buyers and have encouraged them to stick with the model in the same way that some luxury consumers have developed near-lifelong commitments to the BMW 3-Series. That loyalty has added up to 11.5 million Civic sales since 1973, according to Honda.
A closer look at Honda's data indicates that while the car maker's commitment to passenger cars is significant, the business itself required considerable attention, as Honda's strength in the market is based on years of disciplined execution and cultivation of owner satisfaction.
The bottom line is that Honda dealers know how to sell cars in the same way that Ford dealers can sell pickup trucks. Honda's data, drawn from retail sales, proves the importance of dealers is maintaining existing customer relationships and starting new ones, with younger millennial and Gen Z buyers.