Falling gas prices and aggressive year-end promotions are nudging Americans to buy trucks and SUVs more than ever. This set the perfect stage for the arrival of the 2015 CR-V -- Honda's (NYSE:HMC) popular crossover -- in October. As buyers queued up in front of dealerships to own the latest model, Honda breathed a sigh of relief. The company's U.S. sales have struggled in the first half of the year, and Honda needs its popular models to put up a good show to make up for the shortfall. What's Honda's gameplan for the CR-V, and what does the success of this car mean to Honda investors?
CR-V becomes more attractive
The CR-V has always found takers since it first appeared in the U.S. in 1997. Americans loved the compact SUV's four-cylinder engine, fuel-efficiency, and sedan-like comfort. The CRV is currently in its fourth generation, and Honda has recently revved up its looks and features to make the model more attractive to buyers.
The 2015 version is sleeker, trendier, and safer than its predecessor. Honda has remodeled keeping in mind the biggest target customer group for the car -- mothers, young buyers, and small families. So, it has packed more safety measures along with the existing utilitarian features such as wide doors, easily collapsible rear seats, and conversation mirrors to keep an eye on the passenger seats. The 2015 model offers adaptive cruise control, collision-mitigation braking, and lane assist system.
Fuel efficiency's gone up about 12% with the latest upgrade and Honda CR-V can now run for 27 miles per gallon on city roads and 34 miles on the highway. Though falling oil prices have put buyers at ease, oil prices may not be low forever. So fuel savings still matter. The 2015 CR-V is reasonably priced with an MSRP of $23,320, just $200 higher than its predecessor. It also comes with all-wheel drive in its premium iteration.
Much needed sales boost for Honda
Analysts are predicting companywide revenue of 12.6 trillion yen (approximately $105 billion at current exchange rates) for fiscal year 2015, up 6.8% over last year. This is close to the management revenue forecast of 12.75 trillion yen (around $106 billion). For these expectations to come true, Honda needs to do well in North America as it accounts for 40% of the company's total sales.
Honda didn't have a good start to the year in the U.S. Apart from the recalls that hurt its image, falling sales became a big concern both for the company and its investors. This cast a shadow over the company's near to medium term outlook.
But, now it's clear why management did not cut the 1.8 million auto sales guidance (3% higher than the previous fiscal year) for North America even after reporting 3% volume decline in the first half of the fiscal year 2015. It was banking on several strategies to lift sales, and the CR-V refresh could well be a part of the game plan as it constitutes one-fifth of Honda's total unit auto sales in the U.S. The Japanese automaker has sold around 302,600 CR-Vs in 2014 through November, which forms 24% of Honda brand's total sales in the same period in the U.S.
Karl Brauer, senior analyst at Kelly Blue Book, told Autonews.com: "The 2015 Honda CR-V will continue to be the benchmark in the small SUV category. This is an ultra-competitive segment, and one that is still growing in volume."
The new model has already started creating ripples. Crowned 2015 SUV of the Year by Motor Trend, America's favorite "cute-ute" was the fourth most popular vehicle by sales in the U.S. in November, just behind the Ford F-Series, Chevrolet Silverado, and Ram pickups. The CR-V reported big sales increases of 30% and 38% in October and November, respectively, compared with the year-ago levels.
With U.S. auto industry sales predicted to reach 17 million in 2015, and compact crossover being one of the industry's fastest growing segments, the CR-V sales momentum could continue well into the future. To give investors a sense of scale, CR-V's November sales gains will add $215 million to the top line if we take the base LX model's MSRP of $24,150.
Continued sales decline in the U.S. does not bode well for the Honda stock as North America is its biggest market. It helps Honda's cause that the compact crossover segment is witnessing solid growth and the CR-V has a broad appeal. The company has added clever features to the new model, targeting the core customer group, and increasing sales show Honda's strategy is working just fine so far.
ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. 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.