BusinessWeek Online:Honda's CR-V: Craftily Retooled Vehicle

Daily Briefing: NEWS ANALYSIS

By Chester Dawson in Tokyo

An all-American donnybrook has broken out this year between Ford Motor and Honda . After three years as best-seller in its class, the Japanese company's highly popular CR-V entry-level sport-utility vehicle has been knocked off its peak by Ford's new Escape. In the first eight months of 2001, U.S. car buyers drove home 102,604 Escapes, compared to 74,637 CR-Vs.

So Honda is counterpunching hard by bringing out a revamped CR-V for 2002, which it hopes will retake the sales lead after hitting U.S. showrooms on Nov. 15. Honda is confident that its reputation for quality and the traditional high resale value of its vehicles will give the new model an immediate boost. Owners of the 1 million CR-Vs that have sold worldwide since 1995 will probably be among the first in line for the new model. But there are plenty of challenges for taking back the top spot again.

Honda has a lot riding on the new CR-V. Starter SUVs are the fastest-growing segment of the market, and the CR-V has been a pillar of Honda's success. Though its sales are small next to those of Honda's flagships, Accord and Civic, it accounted for a healthy 10% of the 1.6 million units the company sold in America last year. The Tokyo-based company earns more than two-thirds of its operating profit in the U.S., so it can't afford to slip behind -- even in the low-end SUV market, where profit margins are thin.

The CR-V still outsells rivals such as Nissan's Xterra and Toyota's RAV4. But the passage of time has taken a toll. It has been six long years since the model first debuted and helped pioneer the small SUV market. And this is the first full model change. ``A lot of competitors have come out with similar vehicles since the introduction of the CR-V,'' says Honda CEO Hiroyuki Yoshino. ``The new model is designed to take them on.''

SURPRISE SUCCESS. The updated CR-V is much more American-friendly than the original, which wasn't specially designed as an export model. Honda brought the CR-V to market at home back in 1995 to tap into a short-lived boom among twentysomething Japanese for weekend excursions. Two years later, Honda introduced it on a whim to the U.S., where brawny vehicles rule the road. But the CR-V [the name stands for Comfortable Riding Vehicle] became a sleeper hit, especially among younger women who warmed to its smooth, car-like ride. Now, Honda sells the vast majority of its CR-Vs [made only in Japan and Britain] in the U.S.

Plenty of other new features should appeal to American drivers. In answer to the pleas for more juice, the new CR-V boasts an all-new 2.4 liter engine with 10% more horsepower than the previous version. The cabin is also roomier -- by 11.9 cubic feet. That gives it 1.4 times more storage than before, enough to load two mountain bikes in back. But the exterior body dimensions are essentially unchanged to maintain maneuverability. Honda engineers accomplished that feat by ingeniously cramming the engine into the snub-nosed front and compressing the vehicle's double-wishbone suspension.

The dash-mounted gearshift lever is now more easily accessible than before, and the bumper wraps around the front end to give the new CR-V a sportier look. ``We think this sets a new industry benchmark for entry-level SUVs,'' boasts Takahiro Hachigo, chief engineer of the new model.

STIFF COMPETITION. Honda plans on U.S. sales of 10,000 units a month from the get-go for the 2002 CR-V. That would equal the peak sales of the predecessor version, which topped out at 120,754 units sold in 1999. Company officials say they can do that by attracting a wider cross-section of the car-buying public. For instance, Honda is aiming to sell about half of all new CR-Vs to males, vs. 41% for the model it will replace.

And it wants to lower the median age of buyers by three years, to 42. At the same time, the auto maker is targeting a wealthier customer, with average earnings of $69,000 a year, up from $65,000 on average for current CR-V owners. To reach these people, Honda plans an advertising campaign in the U.S. that features outdoor sporting scenes and the slogan ``Designed for Your Adventure & Reality.''

Achieving a blockbuster is far from certain. For one thing, the competition is stiffer now than when the original CR-V debuted and Toyota's RAV4 was the only true rival. Also, the updated version takes few design risks. That could be a potential turn-off for those hoping for a complete overhaul of the CR-V's conservative look.

``The thing that might trip it up is that it doesn't push the design envelope,'' says Clive Wiggins, an analyst in the Tokyo office of Commerz Securities. Given all the new features packed into the new model, however, Honda figures it can give Ford a good run for its money.

Go to www.businessweek.com to see all of our latest stories.