Honda Motor Co. (NYSE:HMC) is doing all it can to push its luxury brand's sales in the world's largest luxury car market -- the United States. With oil prices crashing and the country's purchasing power rising, Americans might not mind splurging on expensive cars this year. Actually, the trend has already begun. Acura clocked an impressive sales spike toward the end of 2014; could its future be just as exciting, if not more so? Let's look through the windshield to see what lies ahead for Acura and Honda.
Falling oil prices and rising Acura sales
In the first half of 2014, lukewarm Acura sales were a key reason for Honda's 1% sales drop in the U.S. But by the time 2014 ended, Acura had actually helped Honda post one of its best sales years in the U.S.
Honda had been struggling with Acura sedan sales, but all that changed with the launch of the Acura TLX in August. The midsize sedan sold 19,127 units through December, which is more than the full-year sales of the second-place vehicle in the Acura sedan lineup: the ILX.
Car sales are benefiting from the plunge in the price of oil in a big way. Americans, now with more disposable income, are showing huge interest in luxury brands. This helped the Honda Acura improve 2014 sales by 1.5% from the previous year. In fact, 2014 saw Acura sell the most vehicles since 2007.
Acura's December sales tally demonstrated that Honda's efforts to improve the brand's sales are bearing fruit, with the ILX and TLX sedans being significant contributors. While the brand gained 13% year over year, it also pulled up the company's sales for the month by 1.5%.
Honda betting on Acura
Automakers shower a lot of attention on luxury cars, as they fetch much better margins than the regular models, and Honda is no exception. The auto giant takes home an additional $15,000 for each Acura model it sells versus an average Honda car. Acura accounted for 11% of Honda's total sales in the U.S. in 2014, and an even higher proportion of profits, owing to its high margins.
Sports utility vehicles are responsible for roughly 65% of the brand's sales. MDX, Acura's best-selling SUV for 2014, accounted for more than 39% of total brand sales for the year. In fact, 2014 was the MDX's best year ever -- it sold 65,603 units, registering 23.7% growth over 2013. The RDX wasn't far behind -- with deliveries of 44,865 units, it made up 27% of Acura's 2014 sales.
The winning streak could continue
Acura's recent performance could be just the beginning of its winning ways. The U.S. luxury vehicle market is projected to climb 9.8% during 2015, according to auto website TrueCar. Alec Gutierrez, senior analyst for Kelley Blue Book, has high hopes for the U.S. luxury market in 2015: "With gas prices at a three-year low and with consumer confidence at a seven-year high, this [profitable] trend should continue." Tanking oil prices and low interest rates are tempting buyers -- creating the perfect setting for Acura to cash in.
Honda is confident of hitting record U.S. sales in 2015. The hot-selling TLX sedan could be a big part of the success. American Honda Executive Vice President John Mendel told Columbus Business First: "It's going gangbusters. We're still struggling to meet the demand."
More launches are in the cards. Honda in January introduced the refreshed version of the Acura NSX at the North American International Auto Show. The 2016 NSX super-sportscar, returning to the American market after a decade, packs a punch and could well put Honda in the league of the most sought-after luxury car manufacturers. Deliveries will begin later in the year.
The 2016 ILX, Acura's entry-level sedan, will hit dealerships in the first half of 2015. New launches are known to be sales drivers and could help Honda attract more buyers.
Honda's long-term efforts at rejuvenating Acura are finally paying off. Demand for the MDX and RDX are at record levels while the TLX has infused new life into Acura's entry-level sedan lineup. And with the NSX, Honda at last has found its "halo" car. Mendel has declared 2015 the "Year of Honda," and the company's luxury arm could play a big role in turning the phrase into reality.
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.