Honda Motor Company (NYSE:HMC) has been toughing it out in the U.S. as sales have taken a hit recently. The company's looking to reverse this through the launch of new models. Its most potent weapon in the war for bigger market share in the U.S. is its popular subcompact hatchback, the Fit -- Honda's smallest car. The release of the all-new 2015 Fit was delayed owing to experiments with innovative production techniques, but it finally hit the sales floor in June. Let's find out what the Fit subcompact can do to ease Honda's current U.S. woes.


Honda Fit. Source: Honda.

A drive down memory lane
Honda first introduced the Fit in Japan in 2001, but it didn't set sail for the U.S. until five years later, after its success was proven. The U.S. proved to be an equally successful market for the car, as American buyers loved the Fit for its fuel efficiency, spacious interior, top-quality finish, and state-of-the-art engineering. The Fit arrived at a time when popularity of subcompact cars was on the rise, and Honda has sold more than 470,000 units in the U.S. since 2006.

Buyers were enamored with its features, which included the "Magic Seat" in the back that could be adjusted in various ways based on the passengers' preference, folding down to create a cargo area. The Sports version of the car easily caught on with customers looking for a nice blend of technology and luxury at a realistic price. With its smart appearance and state-of-the-art functionality, the first-generation Fit bagged as many as 12 awards in a short time. The second-generation Fit was even better and more spacious than the first-generation model.


Source: Data from; chart by author.

The all-new Fit is more competitive than ever
Symbolizing the company's brand ethos "Start Something Special," the third-generation 2015 Honda Fit comes with a promise to deliver more on every front -- be it fuel efficiency, room, or overall smartness.

Perfect for urban driving, the Fit can be parked easily, offers good external visibility, and can comfortably accommodate five adults. It doesn't gulp fuel, either; it's happy sipping it -- making it a great catch for city buyers. According to the EPA, it runs for approximately 35 miles (city and highway combined) on a gallon of fuel with constant variable transmission surpassing the Ford Fiesta's fuel efficiency by 3 mpg, Hyundai Accent's by 4 mpg, and Chevrolet Sonic's by a whopping 7 mpg. Kelley Blue Book has given the new Fit the highest consumer rating compared to the latest Ford Fiesta, Hyundai Accent, and Chevrolet Sonic.  

Honda has been able to stay close to the previous generation's price range by manufacturing the car at its new plant in Celaya, Mexico. The base LX model has a $15,525 price tag, which is just $100 more than its predecessor. The models supporting CVT come at a higher range. Honda's pricing could be the master stroke, as it's hard to tell it apart from the competition's -- the 2014 Hyundai Accent starts at a tad under $15,500, and both the 2015 Ford Fiesta and 2015 Chevrolet Sonic hatchbacks come in at around $15,500.

The small car can make a big difference
In the U.S., approximately half a million subcompact cars are sold each year, and the Fit commands 10% market share. Honda plans to do better with the third-generation model and is looking to sell 70,000 units annually. It's hopeful that sales can reach the 2008 peak of 79,794 once again. The company wants to match the retail sales of the segment leader, Nissan's Versa Note, which sees annual sales of 100,000 units, fleet and retail sales put together.

If Honda meets its targeted 70,000 units in sales in the current fiscal year, it generates sales of nearly $1.1 billion (to be on the conservative side we've taken all sales to be at the MSRP of the base LX model). In the fiscal year ended March 2014, Honda's total U.S. sales were over $47 billion (at current exchange rates). Assuming the same level of sales, Fit's contribution can be pegged at approximately 2% of total U.S. sales.

This may not look like a lot, but still Fit's success could be critical to Honda's prospects in the U.S., as past trends show that most Fit buyers are new to the Honda brand and 50% of them go on to buy another Honda vehicle. And at a time when vehicle sales of Honda's American subsidiary are down 1.3% in the first seven months of the year, with volumes dropping 6.9% and 18.7% for popular models like the Odyssey minivan and Pilot crossover, respectively, the company badly needs to boost its brand image. Management is counting on the Fit to attract new buyers. Speaking about the new 2015 model, Hiroaki Hamaya, Honda America's senior product planner, said, "We realize [there is a] key opportunity to bring in a new generation of Honda buyers."

Final thoughts
The Fit has come a long way in the U.S. But instead of resting on its laurels, Honda's looking forward to pushing itself further. The Fit has proved that an entry-level, inexpensive car can also be rich in design and features. And with all-new improvements, it could gain a big chunk of the market and boost Honda's overall sales.

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ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.