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Why Did Honda Motor Company Redesign Its Fit Subcompact?

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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Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On September 03, 2014, at 10:59 AM, SoCalMex wrote:

    The Fit wasn't as good as Honda used to make cars. It sounds like an empty tin can when the doors are closed, the power is horrible, and the road and wind noise is unacceptable. What happened to the quality that used to be Honda?

  • Report this Comment On September 03, 2014, at 11:57 AM, fpl1954 wrote:

    The question will be if they can maintain quality at the Mexico plant. GE moved their DC motor production from NY to Mexico and refused to either let the NY staff train the Mexicans or the Mexicans to come to NY and learn. Both factory staff argued that $400,000 DC industrial motors are not simply devices, and many mistakes could be avoided by the old and new staffs working together, but the accountants that run GE could only see the cost of sending a few key people to the other factory. The Mexicans were left untrained to do the best they could, and as a result, quality dropped from the most reliable motor on earth to a 100% failure rate. Before it was over, GE no longer sold DC motors. I'm one of many Engineers who will not buy GE products, not since they reversed the old slogan. Today, the GE slogan should be "The quality comes out before the name goes on". Today, GE makes money riding on the professionalism of people they fired, until the customer finally gets disgusted and stops buying.

  • Report this Comment On September 04, 2014, at 12:22 AM, dmrider1 wrote:

    I have a 2009 Fit. It’s the best car I have ever owned and I’ve been driving for 43 years. I’m thinking I should grab one of the 2015 models too.

  • Report this Comment On September 04, 2014, at 10:17 PM, sternrulez wrote:

    I just leased a new 2015 Fit today, replacing the 2012 that I absolutely loved. I cannot even begin to list all of the updates that Honda has made to the benefit of this great vehicle. Just a glance at the standard equipment on the EX model (sorry, I don't like leather seats so no EX-L model for me) will provide you with a laundry list of items that you won't see or can't get on their competitor's similar trim models. The Fiesta comes the closest, but you'll pay extra for a rear spoiler, power moonroof, and 16" tires.

    After reading this article I was surprised to find that the Nissan Versa Note "S Plus" came in last place in this range, considering that it's the "segment leader". Forget seeing fogs or 16" rims on it, and suspiciously absent are what I consider common amenities like keyless entry and even power windows. I can't recall the last time I saw a post-2005 vehicle without either or both of these features, and if such models do exist I doubt they'd be on my "look at" list anyway. Think about all of the recent cars you've been in...wouldn't a window handle seem glaringly out of place in this day and age? As a final counterpoint to the Versa, I briefly sat in one several years ago while an agent was transporting me to my rental vehicle, and the only way my feet would touch the passenger-side floor would be if I laid the seat nearly 100% horizontal, it was THAT cramped inside (my knees were painfully pressed against the dash where I was almost suspended in the seat - with it completely back of course). This certainly is not a vehicle anyone over 5' 5" would be comfortable in for anything but a very brief period of time.

    I must not be alone in my fondness for the new Fits, as it took the largest dealership in the area 2 complete weeks in order to obtain one for me. I didn't ask for anything exotic or additional on it, only that it wasn't black or dark purple-colored. I've done business with this dealership for many years on various brands (this is my 3rd Honda product counting the '87 CRX I once owned), and Honda is by far their largest selling brand out of the 15+ they offer. For a high-volume dealership such as this to have to wait 2 weeks for ANY model is unheard of at best, and the sales manager actually apologized to me today for the long wait. They do have an LX 5-speed in stock, so if anyone is in the market, I can hook you up... ;)

  • Report this Comment On January 06, 2015, at 5:08 AM, PEStudent wrote:

    dmrider1, I have a Honda Fit, a 2013 model, and it's the best car I've ever had and I've been driving 47 years. Consumer reports and other publications rate it as being a lot of fun to drive and they're right.

    The new 2015 model dropped from 57 cu.ft. of cargo space to 52 cu.ft., but it's still close to the 68 cu.ft. typical of larger SUV's like the Ford Edge.

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