Honda Makes Acura a Stand-Alone Division to Spur Sales

By Alan Ohnsman - Mar 10, 2014

 

Honda Motor Co. (7267), making good on plans to focus more on the image of its Acura brand, is setting it up as a division within the company for the first time with dedicated management, marketing and other resources.

The first premium car brand from an Asian automaker will be known as the Acura Division starting April 1 and be led by U.S. Senior Vice President Mike Accavitti, the company said in a statement yesterday. The company’s namesake Honda Division will be led by Jeff Conrad, and both he and Accavitti will report to U.S. Executive Vice President John Mendel.

“American Honda automotive operations have long been separated by function rather than by brand,” Mendel said on a conference call. “This is a very significant step as it is the first time we have had a separate and exclusive division for the Acura brand. So this move obviously reflects the deep commitment we have for the future of Acura.”

The company since last year has acknowledged a need to shake up its premium brand, which arrived in the U.S. years before Toyota Motor Corp.’s higher-volume Lexus luxury unit. In December, Tetsuo Iwamura, Honda’s executive vice president and current North American chief, said fixing Acura, particularly its sedan line, was a top priority for the Tokyo-based company.

The plan for an Acura division follows Honda’s announcement last month that it’s forming an Acura Business Planning Office, which starts April 1, to be led by Erik Berkman, the company’s highest-ranking U.S. engineer. Berkman, who led development of one of Acura’s biggest recent hits, the 2004 TL sedan, will oversee product strategy and development, Honda said.

Berkman’s Record

Improving the Acura line in the U.S., the brand’s home market, is essential for it to become more of a global player, said Michael Robinet, managing director at consultant IHS Automotive.

“The U.S. market is critical, because it drives their activity from a global perspective,” he said. “There’s a real need to differentiate the vehicles from a technology perspective, the powertrain and at the customer-service level.”

Berkman’s TL helped push Acura to record U.S. sales in 2005 of 209,610 cars and SUVs. In 2013, a decline in Acura sedan sales kept Honda from a combined volume record, with Acura delivering 165,436 vehicles, 21 percent off its peak.

A potential change with the creation of separate Honda and Acura divisions may be dedicated product-development budgets, Mendel said.

“When you have someone with the background strength of an Erik Berkman fighting the fight daily for allocation of funds, you’ve got a pretty strong case,” he said. “We’re looking at how that breaks out and what it is, but that is one of the potential benefits of this going forward.”

Mixed Record

Honda has a mixed track record with Acura, said Matthew Stover, an equity analyst with Guggenheim Securities in Boston who has a neutral rating on the company.

Too many Acura models “were better than the Honda alternative, but less convincing when slated against the more substantive competitors in the market,” Stover said. The new strategy “forces more commitment and focus, which is necessary in what is a very profitable but extremely competitive market segment,” he said.

Acura has been on a “wandering road” at times, in terms of image and sales, Mendel said. At Honda’s highest level, there’s a strong desire to end that, he said.

“There is a greater recognition that we need dedicated resources and a dedicated organization to pull that through,” Mendel said.

Being first the first Asian luxury brand in the U.S. wasn’t enough to keep Acura in a top position, said Jack Nerad, an industry analyst for Kelley Blue Book in Irvine, California.

Beyond Rational

“Sometimes being a fast-follower is better than being a leader. Lexus specifically profited by observing Acura’s approach and doing some things differently,” Nerad said. Among these was adding a large, V-8 engine sedan, something Honda balked at, he said.

“Acura would never come out with a big, rear-wheel-drive, 8-cylinder sedan,” Nerad said. “Sometimes, the engineering prowess at Honda maybe gets in the way of their ability to deal with things beyond the rational. And luxury goes beyond the rational.”

Honda’s American depositary receipts fell 1.5 percent to $36.57 yesterday in New York. The company’s U.S. sales unit is in Torrance, California, and its North American headquarters are in Marysville, Ohio.

Source;
http://www.bloomberg.com/news/print/2014-03-10/honda-makes-acura-a-stand-alone-division-to-spur-sales.html