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March 27, 2003

Honda UK hits one million milestone

Honda ended last year with record output from its Swindon plant. On March 6th, the one-millionth vehicle rolled off the Honda UK production line. Chris Phillips reviews the company's progress and questions the head of Honda UK on development strategy.

By bcusack

Honda ended last year with record output from its Swindon plant. On March 6th, the one-millionth vehicle rolled off the Honda UK production line. Chris Phillips reviews the company’s progress and questions the head of Honda UK on development strategy.

Honda could be forgiven for thinking of the proverb “He who laughs last, laughs loudest” as car output at its Swindon factory last year hit 175,000 units, comfortably ahead of the previous year’s total of 114,479.

Sixteen years previously, Swindon had a more modest role, as Honda UK’s pre-delivery inspection centre located on a former airfield. Three years later, it became an engine plant for the Honda Concerto and Rover 200/400 series.

The link with Rover ended in humiliation as Britain’s last remaining volume car producer was sold to BMW behind Honda’s back. That deal was to end in tears and therein lies the significance of last year’s performance at Swindon. It marked its 10th anniversary as a car plant by jumping from eighth to fourth place in the UK production league, placing Honda for first time ahead of its former Rover partner, as well as Land Rover, BMW (Mini) and Jaguar.

Over the past 10 years, Honda has invested more than £1bn and generated 4,500 jobs in an area where industry was traditionally dominated by the railways. Last year’s unprecedented output at Swindon was accompanied by record export sales of around two thirds, with more than 54,000 CR-Vs supplied to North America’s booming Sport Utility Vehicle market alone.

In the UK, sales comprising both Swindon-built and imported models increased by more than one fifth, edging closer to the 80,000 a year mark which will give Honda a market share of more than three per cent.

Those Swindon cars accounted for around three quarters of the total, led by the Civic (35,000), CR-V (13,000) and outgoing Accord (9,000). This year sees the appearance of the new Accord and Tourer estate version, sportier versions of Civic, and a second year on the UK market for the Jazz supermini – Japan’s top selling car- which accounted for more than 12,000 sales in Britain during its 2002 debut.

Q & A with Ken Keir, managing director of Honda (UK), on the company’s ‘Power of dreams’ campaign and how he believes they can be fulfilled.

It’s been stated that Honda UK hopes to increase its market share from 3% to 5% three to five years’ time. How realistic is that goal, given that the new Accord will move into a pricier slot in the D-segment (with a consequent lower sales forecast), while Jazz and Civic remain in highly competitive segments. In other words, where’s the volume growth going to come from?

Increasing our market share is a secondary goal; our primary one is to achieve profitability. Increasing market share is one way of achieving profitability since it enables fixed costs to be more easily absorbed. But we believe that increasing our market share to around 5% (which in the UK means selling around 120,000 cars per year) is a realistic goal. Growth will come from increasing supplies of Jazz and CR-V models to meet demand and further diversification in the Civic range with the introduction of 2.0 litre and IMA variants, as well as the introduction of diesel engines in the Accord and CR-V ranges.

Incidentally, Accord volume is not expected to decline with the new version since we expect the reduced numbers of 4-door to be more than offset by the numbers of Tourer (estates) sold. The ratio of saloon/estates is expected to be around 40/60, with further incremental volume coming from the diesels.

Would you have preferred the new Accord to come with a diesel option at launch? What difference to sales is the diesel likely to make next year?

Of course, but not if that meant launching the car with an inferior powerplant. We think that the extra time spent developing a state-of-the-art Euro 1V diesel for the Accord will ultimately benefit us. And from a media perspective it will generate a second wave of interest in the model, one year after launch. We predict that the diesel will eventually account for 40% of Accord sales in Britain and since at least half of these will be additional sales, it will make a big difference to total Accord numbers.

How successful have you been in your efforts to lower the age profile for the marque? What more can be done?

First off, we don’t wish to alienate our existing older customers. They are a valuable group who remain loyal to the brand and we don’t wish to lose them. But it’s true that we have been underperforming in attracting more customers who are younger. To address this, we now have the affordable Jazz supermini (which is currently attracting repeat customers six years younger than the Honda average and well within our target range of 30 to 50 years of age); there is also have the Civic Type-R which naturally attracts younger enthusiasts to the brand (and for those who can’t afford the insurance, we now have a Type-R ‘lookalike’ model, the Civic Sport).

We currently have a market share of more than 4.6% of customers aged between 50 and 80 years (this we are happy with and wish to maintain), and a 2.02% share of customers aged 30 to 50 (this we are unhappy with and wish to grow!). The market opportunity for customers aged 30 to 50 is 50% greater than the 50 to 80 bracket, generated by higher mileages (i.e. they change their cars more often) and company car drivers. The new Accord will be key in growing the relatively ‘youthful corporate’ market.

How are you going to shift consumer perception of the brand with the ‘Power of dreams’ campaign? How much is it costing, how long will it run for and what’s the rationale behind it?

Our programme of shifting consumer minds is called ‘image up’. In simple terms we are communicating ‘what we are’ and not ‘what we make’. The first execution using this principle was the ‘OK factory’ (of TV commercials), for Honda OK is simply not good enough! We are currently seen as a ‘sensible and dull’ brand (i.e. having no ‘heart’ or emotional value) when we are actually a ‘spirited’ (our people) and ‘visioneering’ (our ability to see the future and engineer it into life) business. The ‘image up’ programme will run for five years (we are eight months in) and has already lifted Honda awareness from 12% to 28% of the population – the same as Toyota, but for one third of the spend! We are now only 6% points behind VW, which is our target.

However, awareness is only part of the story; for 2003 we are focusing on desirability. The contents of this programme are currently confidential but we will be using a number of unique Honda ‘stories’ that the general consumer would be ‘proud to be associated with’ (i.e. would like to ‘wear’ the Honda badge). The desirability programme is designed for the 30 to 50-year-old consumer.

As for cost, we will spend what it takes, but our strategy is to have better ‘stand out’ than the competitors by using non-automotive creative ideas. This is why we recruited Weiden & Kennedy, who made Nike famous.

Given the block exemption changes, how do you envisage Honda UK’s distribution/aftersales set-up in, say, five years’ time. What’s your view on the ‘authorised repairer’ issue?

Block exemption is not something we in Honda UK see as a major issue. We have confidence in our dealer network’s ability to build and retain a strong customer base. We will continue to work with them on customer retention as our number one priority. Block exemption changes will ensure that Honda in the UK maintains that customer focus. This has been a core strength of the franchise in Britain and will remain so.

Further calls for Britain to join the Eurozone have come from Ford’s Nick Scheele and Nissan’s Carl Ghosn. Meanwhile, Peugeot is the latest manufacturer intending to set up shop in Poland. What effect is absence from the single currency having on Honda’s UK manufacturing operation?

From a business efficiency point of view, Honda favours UK entry into the Euro. However, for the UK to join or not is a decision for the British people.

HUM MILESTONES

1985 – Honda of the UK Manufacturing (HUM) is established on a 1,480,000 sq.m. former airfield at South Marston, Swindon.

1992 – Additional £330m investment in HUM to increase capacity from 100,000 units per year to 150,000.

1996 – 250,000th Swindon-built car rolls off the production line.

1998 – Another £450m investment and an extra 1,000 jobs.

1999 – 500,000th Swindon-built car rolls off the production line. 10th anniversary of engine plant.

2000 – Production of 4WD CR-V begins.

2001 – Official opening of second car plant to increase annual production capacity at Swindon by 100,000 units, taking the total annual capacity to 250,000.

2002 – First shipments of 3-door Civic Si to North American market represents second phase of export business. 500,000th Swindon-built Civic 5-door rolls off the production line.

2003 – One millionth HUM-produced model rolls off Swindon production line.

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