Multinational automobile maker Honda Motor Company (HMC, Financial) has been losing market share in Europe for some time now. But it was not always like this. The company’s sales and profits in the region were at record highs, before the recession period. Honda’s earnings in Europe peaked in 2007 and 2008, the time when the market was flourishing and the economic slowdown had not cast its shadows yet. A steep comedown from those times, Honda’s share in Europe has fallen to 1.1% by mid-2014, or about half of its most recent high point of 2007.
At present, Honda is selling various models such as the sub compact car –Jazz, Mid Size offering Civic, CR-V-Sports Utility Vehicle (SUV) and Accord in Europe. The company’s only small car offering is the Jazz model that was launched in the aftermath of the recessionary period.
Downhill in Europe in presence of intense competition
The Japanese auto maker had sold a total of 72,264 cars in Europe’s 30 major markets in the first 6 months of 2014. This is a 7.7 % decline, compared to the same period a year prior. The downhill ride seems particularly glaring when compared to the overall car sales in Europe which grew by 6.2%, in this period, aided by Europe’s economic recovery.
To add salt to injury, other Japanese car makers are doing well in the European market. In the comparable period, Nissan (NSANY, Financial) scaled up sales in Europe by 10% and the sales of Toyota Motors (TM, Financial) went up by 6.8%. In short, Honda is now the fifth among the Japanese car makers in Europe, with Mazda Motors (MZDAF, Financial) and Suzuki Motors (SZKMY) also ahead of it.
In fact, the recent fourth quarter results also reflects the struggle the automaker is facing in Europe as the European operations reported an operating loss of $47.6 million in the quarter, down from $124.6 million reported a year-ago. As the model mix in Europe remains dull for Honda, and on top of that the foreign currency woes aggravated the situation for Honda in Europe. For the full fiscal year, Honda witnessed the widening of the operating loss in Europe from $142.9 million a year ago, to $157.2 million in the current fiscal year.
The factors behind failure in boosting European sales
Honda’s lackluster performance in Europe is in contrast to its own success story elsewhere. One of the prime reasons for Honda’s poor performance in Europe is due to its inability to respond timely to the changes in the market. There was a perceptible preference change among the consumers towards smaller cars and Honda was found wanting in responding with any adequate strategy to that altered market reality. Some experts are also of the opinion that Honda’s prime focus on the emerging markets in the world which are growing much faster and is way more lucrative is one more reason why the European market was not given top priority by the Japanese car major.
What now?
Be that as it may, but the question is, where does Honda go from here in the European market? Should it give up on the European market altogether and scout for more profitable markets elsewhere? Well, the company is in no mood to do that mainly for the strategic importance of the European market. Europe is important for the overall brand strategy of the global car major. Brand recognition in the European market has meaningful connotations for Honda, and hence, the focus is clearly to cover lost ground in the rather saturated European car market.
Moving forward
The task of revival in Europe is daunting, but Honda is raring to go. On March 31, Honda of the UK Manufacturing (HUM) not only confirmed future production activities but also a £200 million investment in new production technology. The move is clearly geared towards indicating big time commitment to manufacturing and presence in the European market.
Honda’s announcement states that the company’s European production facility would soon become the global production hub for the next generation Civic 5 door model, which will be produced for the European market as well as for export to the key global markets. According to Toshiaki Mikoshiba, COO and President of Honda Motor Company, “We look forward to renewed optimism and purpose for Honda in Europe.”
