Grim Honda President Slashes Profit Forecast Yet Refuses to Expand CNG or Hydrogen
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A grim and frowning Honda President Takeo Fukui has told investors and the media that lower earnings are in store for the long-envied Japanese automaker due to declining demand from American consumers as well as dollar-yen fluctuations. Despite consumer flight from such Honda gas guzzlers as the Pilot SUV and Ridgeline—among the worst mileage cars on American roads, the company is still betting on oil-burning cars. Hence, it refuses to expand production of its Honda Civic GX which uses pure compressed natural gas (CNG) or its much-heralded hydrogen-fueled Clarity. Honda has severely restricted production of both vehicles to vastly below the market demand.
Japan's second-biggest automaker now expects only $2.06 billion in group net profit for the fiscal year ending March 31, 2009—more than a third below last’s year’s level. This is the second time the Japanese car company has slashed its forecast.
"Every day, the hardships we face are getting worse and worse. And there are no signs of recovery," a grim-faced Fukui said at a news conference accelerated by two days as the news about the public’s rejection of Honda cars progressively worsened.
Worldwide, Honda sales for the year are expected to reach some 3.77 million units in 2008, a stagnated figure virtually the same as the year before. But in the United States, some models have dropped by as much as 47 percent. With such dim news, Fukui resisted even announcing a sales target for 2009. Observers called the bleak approach highly unusual for generally confident Honda, once the darling of the automotive world.
It was unexplained why the company would not seize the opportunity to reverse its restriction on alt fuel vehicles in America. For example, the Civic GX, which runs on home-generated CNG and the Clarity which runs on home-generated hydrogen have both been sidelined by the company. The GX home refueling appliance, known as the Phill, is kept unavailable to most American markets. The Clarity home refueling appliance, known as the Honda Energy Station is being held off the market altogether even though the company’s testing officials declared “it works fine.” As a result, the company could claim it was keeping production to a trickle for “lack of a public infrastructure” of filling stations. In addition, the company has falsely claimed there was “no demand” for the CNG vehicle, even as dealers throughout the country tried earnestly to order them, and as many gas-shy consumers tried to buy them.
Out of more than a million cars produced in America in 2008, only about a thousand Civic GX vehicles were produced. Once that thousand-vehicle token limit was reached, the company shocked CNG enthusiasts by suspending production altogether as its gas-dependent SUV sales plummeted. The company declared it would nudge 2009 GX production up to two thousand units, but has already sent dealers a notice for anticipated shortage in supplying cars. There are 8 million CNG cars worldwide, yet in 2008 Honda only made about 90 per month.
Similarly, the hydrogen burning Clarity could run on water electrolyzed into hydrogen, as is produced at the Shell station in Los Angeles, or from a home refueler that reforms natural gas, but the company refuses to produce more than several dozen Clarity cars per year.
In his press conference, Fukui stated the automaker will focus on hybrid vehicles which burn petroleum and small cars, in what many observers saw as an attempt to continue gasoline consumption as along as possible.
Observers were baffled as to why the highly respected automotive manufacturer has entrenched itself in its refusal to produce alt fuel cars which are already proven vehicles. Honda Investment has been slashed to save money. Glittery plans to expand new poor mileage car lines, the Japanese-market Acura luxury model and the spiffy NSX sports car were outright cancelled.
In recent years, the annual Honda media event has been an occasion for Honda to announce ambitious, glittery expansion. But this year, it was almost all bad news.
Company managers will take a ten percent pay reduction. Employee layouts were to accelerate. More than 1,000 temporary Honda workers in Japan will continue to see cuts for some weeks to come— about 18 percent of the company's temporary work force in Japan. A new plant in Saitama near Tokyo has been postponed until 2011 at the earliest. Another Saitama plant that produced engines has been ordered to reduce operations. Honda is also postponing its mini-vehicle manufacturing plant in Mie, Japan for at least two years. In addition, a planned production increase at a Turkish plant has been cancelled, and a new plant in India has been shelved for now, a glum Fukui admitted.
Exacerbating the public rejection of Honda gasoline cars has been the sinking dollar, which shrinks the value of every oversea dollar the company earns. While Honda still shines with its highly fuel-efficient Civic and Accord, the company’s overall performance in America has been battered because of its 15 and 16 MPG gas guzzlers.
In November, Honda's vehicle sales sank 32 percent from a year earlier. In May, some models declined as much as 47 percent.
CNG advocates are stunned at the continued intransigence in the face of such humiliating market defeats. One source associated with CNG operations in America repeated what has been said by others for months, “Honda just doesn’t get it. The oil age is over. Either they are going to cry over their unsold guzzlers or switch to the new era.” A California hydrogen advocate echoed that sentiment snapping, “Who would have thought that such a savvy company would be so wrong-headed about their best products?” One dealership source asked, “Are those guys in Torrance telling Tokyo the truth about the American market?”
Honda has assumed a bunker mentality about its suppressed GX and Clarity cars. At one point, a senior executive tried to deflect criticism by mocking the murder of President John F. Kennedy in an online chat, likening the mystery surrounding the assassination to the decision not to sell alt fuel cars in great numbers. The company has declined to answer questions for this report.
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