New car sales in the United States have been on quite a roll over the past few years as manufacturers have looked to gain market share while the auto industry expands and overall sales volumes grow. Increased consumer demand has pushed production volumes and sales expectations upward, but that also means amplified pressure on OEMs to deliver on various sales and profit targets. Whereas some automakers may choose to stretch for sales goals at the expense of profitability however, Honda has proven that while it is certainly concerned about its sales success, its primary focus is on being profitable. Embodying this business philosophy is the Honda Accord, the company’s highest-selling model, and a deeper dive into the vehicle’s performance shows how unique it is from the rest of the competition.
It is widely known that, perennially, the popular Toyota Camry is the highest-selling mid-size sedan, let alone car, in the United States. Frequently however, the model following right behind it in the segment is the Honda Accord. Looking at the past 18 months, the Accord had 519K total sales, behind the Camry’s 613K units, but ahead of the third-place Altima’s 471K deliveries.
Highlighting the Accord’s sales success is the fact that it was America’s best-selling mid-size car in April 2013, when 33,528 of them were sold, almost 6% more than the Camry that month. Just taking a look at aggregate sales fails to paint the whole picture for Honda’s thoroughbred however, as the underlying details are what truly separate it from the pack.
Taking a glance at the period from January 2012 through May 2013, Honda of America Manufacturing’s Marysville Auto Plant, which builds the Honda Accord and the Acura TL, has been averaging a production utilization of 105%. That translates into the facility running at 5% above its intended maximum capacity, and of particular significance is how major a role the Accord played in the production total. Over those 17 months, a total of 655,415 vehicles rolled off the line, but Honda’s mid-size car made up 601,746 of those units, equaling a whopping 92% of the plant’s output.
With the Ohio plant running well above 100% capacity, the manufacturer is essentially building as many Accords as it can to meet consumer demand, but by no means is the automaker producing so many cars that inventories are swelling above reasonable levels.
High production volumes have not translated into excessive inventory levels for the Accord, which can be seen when observing its days’ supply figures. The mid-size car’s average days’ supply since January 2012 is 47 days, well below the 60-day inventory standard that is considered optimal in the auto industry. This is further evidence that the car is so popular that Honda of America Mfg., Inc. cannot even build enough units to satiate demand and is not just building cars to dump into rental fleet either.
Since January 2012, an average of only 0.7% Accords have gone to rental fleet and the high over that period was a tiny 2.2% in March 2012. One can try to make the argument that the release of the Honda Accord attributed most to the incredibly low rental fleet numbers since its release in fall 2012, however, an aged, out-going Accord model still only had a high of 603 units go to rental fleet in that same month of March.
From an incentives standpoint, the Accord has also been impressive, but more so because of how much worse its competition has performed. As the last generation Accord was winding down from January 2012 through September 2012, incentives averaged almost $3,700, which was high compared to the competition, but a common occurrence for any automaker clearing inventory before releasing an all-new model. On the other hand, average spending dropped to $1,250 per unit since October 2012, which is the lowest in the segment, albeit also typical for a new model as offers are reduced.
It is important to note however, that although the Accord is the newest model in the segment, it is not by much. Other relatively new players such as the Fusion, Malibu, and Altima were all released last summer, while the Camry was launched just one model year earlier in fall 2011.In the same nine months since the Accord was launched in October 2012, the Fusion, Malibu, and Altima’s average incentives spending was almost $2,300, while the Camry’s was over $2,400, but the Accord was well below all of its competitors.
When digging into the details that reflect how the Accord has performed, it is unmistakable that the Honda is in no way the same as any other model in the segment. The Marysville plant that builds the vehicle is producing beyond its supposed limits to meet real consumer demand that is not being inflated by egregious incentives spending. In addition, inventory levels are in check as can be seen by its low days’ supply, but that is in no part due to rental fleet sales either, which are extremely limited. What this means is that the automaker is not maximizing production to sell more units than the market can bear and is not skewing demand by relying on excessive incentives spending or selling to rental fleets.
Honda has done very well through the first half of the year with its Accord, being second in total mid-size car sales, and the Honda may have an opportunity to surpass the Camry for the top spot by the end of the year. Toyota, surprisingly, has needed to utilize relatively high incentives and rental fleet sales to maintain its sales lead, despite being as new as it is, but even though Honda could try to take advantage through those same incentives or rental fleet options, it is content to focus on running its business efficiently and responsibly. To sum it all up, American Honda’s executive vice president of sales, John Mendel, was quoted saying that the company “won't make a customer look silly for buying a car in November vs. buying one in December or any other month. We're not going to damage the customer's decision or financial investment in the vehicle just to claim a leadership role against a competitor. It just doesn't make any sense. We're not going to do anything it takes." Such are words from an automaker that prioritizes responsibility and profitability above all else, including a top sales crown.