Will an Acura Overhaul Give Honda Motor Company Investors Their Money's Worth?

Honda (NYSE: HMC  ) is going all out to put its luxury brand Acura at the forefront in the North American market. With the largest number of high-net-worth individuals, or HNIs, in the world, the U.S. is the planet's biggest luxury car market. And with the economy shoring up, people are willing to splurge again -- Honda doesn't want to miss the opportunity. It has a billion-dollar plan to rev up the Acura brand. The stakes are high, but so are the rewards -- let's take a closer look at Honda's game plan.

The MDX SUV. Source: Acura

The Acura ache
The first Japanese carmaker to roll out a premium line in the U.S. in 1986, Honda hasn't quite been able to leverage the lucrative U.S. luxury market. Acura sales peaked in 2005 at 209,610; since then, the brand witnessed a decline of over 20%. While sales have increased modestly in the past few years the tally in 2013 stood at 165,436, falling 8.1% short of Honda's target of 180,000.

The sedans -- ILX, TL, RLX and TSX -- have been the main drag, with combined sales of the four dropping 10% in 2013. The Acura fold also offers two sport-utility vehicles -- MDX and RDX -- that are quite popular and have added to sales. On one hand, the RDX gained a whopping 52% sales growth in 2013; on the other, the TSX lost 39%.

Honda has struggled to keep pace with competitors like Toyota's (NYSE: TM  ) Lexus or General Motors' (NYSE: GM  ) Cadillac. When compared with Acura, Lexus fairs far better. In 2013, Lexus sold 273,847 units in the U.S., which is 40% more than Acura. Even so, perhaps Toyota expects more out of Lexus because it has been pouring fresh investments into it.

Graph made by author. Data:

The medicine
Despite a long history behind it, the Acura brand has not caught the fancy of the American car buyer, so much so that many don't even know the connection between Honda and Acura. What the brand possibly needs is a halo car to polish its image. A halo car is a brand's figurehead, a car everyone dreams of owning.

What halo cars can do for a brand is no secret. Among those who have found their x-factor is Ford. The Mustang brand has been around for the last 50 years and is still going strong. It gives Ford the perfect icing on its Fusions and Focuses. Toyota is also hunting for its halo, and has been toying around with mind-blowing concept cars like the FT-1, and is partnering with BMW for a sports car.

The Acura overhaul was started in 2012, and has spread over three years. In March 2013, the RLX sedan was introduced, and this year TLX will be launched, setting the stage for grand reentry of NSX, the brand's super sports car in 2015.

The NSX hit the roads in 1990 with an all-aluminum body -- a first in the U.S -- and a powerful 270-horsepower, 3.0-liter, V6 engine. But production was stopped in 2005. Honda is relaunching NSX for the halo effect; it will be a super sports car with a price tag above $100,000. The company has even planned a factory in Ohio at an investment of $70 million that will roll out the NSX by 2015.

NSX Concept at 2013 Detroit Auto Show. Source: Wiki Commons

Can it cure?
Overhauls, restructuring, remodeling are nothing new to the auto industry. Some get the desired result, others don't. In recent past, when GM got behind its struggling Cadillac, the efforts bore fruit. Models like the Cadillac ATS were rebuilt from scratch with a focus on design. Now, Cadillac is being positioned alongside BMW and Audi. The Cadillac CTS was named the 2014 "Car of the Year" by Motor Trend. Ford has been trying similar things with Lincoln, but with modest success.

Honda's efforts are also in the right direction. The most recent step taken by the company to address Acura's sagging U.S. sales is to constitute an Acura business group that will examine all its ailments. Honda has kept aside $1 billion for the revamp. No matter what it takes for the company to get its premium fleet back on track, it could be worth its while. Top of the line cars offer huge margins, and the U.S. luxury market is always a big draw with its size, both in terms of money and numbers.

Summing up
Five years back, the former president Honda had stalled all restructuring, including the comeback of the NSX, as recession raised its ugly head. Times they are a changin', and the company is doing well to respond quickly. If Acura gets rolling, Honda will be laughing its way to the bank and investors will get their money's worth.

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Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 09, 2014, at 5:44 PM, Jerseyguy wrote:

    Honda has abandoned its cutting edge engineering

    and cars such as the NSX, CRX and Prelude to become dull like Toyota. Honda abandoned its double wishbone front suspensions for the cheaper more conventional struts. Honda uses outdated transmission designs.Acura refuses to abandon

    Its unpopular front end designs and keep getting heavier with each new model. Welcome to also ran.

  • Report this Comment On March 09, 2014, at 8:40 PM, humandumpster wrote:

    Acura's largest problem came with the early TL's which a horrid percentage of fail rates with the transmissions. The lack of Acura to appropriately address the problem led to many people including myself to stay as far away as possible from the brand. Luxury price should have it's perks, but Acura failed to utilize any of them.

  • Report this Comment On March 10, 2014, at 12:17 PM, rawheadrex wrote:

    Give us RWD! There is not another Honda in my future until that happens.

  • Report this Comment On March 10, 2014, at 3:57 PM, donnoh1 wrote:

    The only thing that has turned me off about Acura is that they all require premium fuel yet produce no more horsepower or torque than competitors that only require regular unleaded and achieve similar performance and fuel economy. Their website footnotes warn of engine damage if using gas with octane rating below 91. The Acura nose is not very attractive either but that's just a matter of taste.

    Why would I buy an Acura when I can get a Lexus, Infiniti, Cadillac, or Lincoln with similar or better performance and spend 10-15% less on gas?

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