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http://www.dispatch.com/live/content/business/stories/2010/06/27/fueling-ohio-future.html?sid=101


Can the automaker's flexibility allow it to grow again despite recent record losses?
Sunday, June 27, 2010 06:37 AM
By Dan Gearino

THE COLUMBUS DISPATCH

The revamped Acura TL, a model built in Marysville, has been praised for its engineering but less for its design.

JONATHAN QUILTER | DISPATCH PHOTOS
Pat Hogan mans the engine line in Marysville's Honda plant. Ideally, a vehicle is completed there every 54 seconds.

New Accords are inspected on the final assembly line at Honda's Marysville plant. Some V-6 Accord production was moved to an Alabama plant last year.

MARYSVILLE, Ohio - Every 54 seconds, a new vehicle rolls off the Honda assembly line. It's a pace so steady that an observer might be surprised to know that the company has just endured the worst two-year stretch in its history. The recession and the turmoil it sparked followed a time of almost nonstop growth for the Japanese automaker, which until then had avoided the forces that crippled many of Ohio's other manufacturers.

This was more than a normal cyclical decline. It was a threat to the entire auto industry. And it arrived at a unique and vulnerable time for Honda.
Now, as the industry regains its footing, Honda officials are preparing for what might come next.

"Even though we're seeing signs of improvement, we can't rest," said Tim Reisinger, a senior manager at the Marysville assembly plant.

Honda has become the largest auto employer in the state, with about 13,500 workers, surpassing General Motors. At the same time, Honda had the largest U.S. job cuts in its history last year, offering buyouts that reduced its Ohio work force by about 1,500.

Like the employment situation, the vehicle lineup is a mix of good news and bad news, analysts say. The company boasts some of the industry's best-known and most-respected models, such as the Accord and Civic. But recent attempts to add to the lineup have failed to produce a hit, while other brands have invested heavily in new products.

"They've been hitting singles and striking out, for the most part," said John Wolkonowicz, analyst for IHS Global Insight, a research group in Lexington, Mass. By his count, Honda has gone four years since it had an outstanding design: the most recent update of the Civic.

The company's U.S. sales peaked in 2007 with 1.6 million vehicles sold. Then, in mid-2008, high fuel prices sapped larger models' sales, followed by the wider turmoil of the recession and credit crunch. Sales fell to 1.4 million. Last year, sales sank to 1.2 million, a level not seen since 2000.

Another key indicator of the automaker's strength - market share - remained about the same at 12.9 percent last year, down 0.1 percentage point from the previous year, which was the highest in Honda history.

The company could boost its market share by providing more sales incentives but has stuck to its long-standing avoidance of heavy discounting.

"We don't chase market share inordinately," John Mendel, Honda's top sales executive in North America, said in an interview last month.

And he isn't about to second-guess the incentive policy, even as Toyota rolled out incentives to boost sales, addressing the fallout caused by safety-related recalls.

"Essentially, (use of incentives) devalues the product and hurts resale value," Mendel said.

A test of flexibility

The sales slump hit right as Honda was opening a plant in Greensburg, Ind., to handle high demand for the Civic, an expansion at a time the rest of the industry was pulling back. Something needed to give, and there were questions about whether Honda was about to have the first layoffs in company history.

Instead, the company took a series of steps to adjust manufacturing. For example, some production of the V-6 Accord moved from Marysville to Lincoln, Ala., because of low demand for other products made at the Alabama plant.

When demand remained low for almost all vehicles, the company began to cut the number of production days, leading to weeks of shutdowns.

Shifting on the fly is something Honda does better than any other automaker, said Kim Korth, president of IRN Inc., an automotive research firm in Grand Rapids, Mich.

"They can move much more quickly with changes in the market," she said. "It's a huge competitive advantage."

The flexibility applies to just about everything Honda does. During a recent tour of the Marysville plant, the Accord and the Acura RDX crossover rolled down the same assembly line, with workers seamlessly moving between the two. The plant also makes the Acura TL and the two-door version of the Accord.

About 1:30 p.m., one of the two lines had produced 349 vehicles for the day, which was nine more than the goal, according to a digital scoreboard. The goal is to make one vehicle every 54 seconds, a time that accounts for the possibility of short interruptions. If the line never stops during a shift, then the plant will produce extra vehicles for the day, building a reserve that will allow for future interruptions.

With few exceptions, Honda can build any of its vehicles on any line at any plant. Everything, from the tools in workers' hands to the sensors on robotic arms, can be used for different models.

This can get complicated. To show this, Kirk Bunner, the top manager on the assembly lines in Marysville, held two gray bolts that are used in suspensions. One, for the Accord, is 10 centimeters long. The other, for the RDX, is 10.3 centimeters long. In order to build both vehicles on the same line, workers need to be able to distinguish between the bolts, even though they look identical.

The solution has been to store the parts in colorcoded bins. Parts for the Accord are in a blue bin, and parts for the RDX are in a red bin.

"It reduces your potential for error," Bunner said.

That, and hundreds of other changes, make a complicated job a little easier.

[Continued in next post]
 

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New faces at the top

Right in the middle of the sales slump, the company changed leadership. Takanobu Ito became the CEO at the Tokyo headquarters, replacing Takeo Fukui, and Hidenobu Iwata became CEO of American manufacturing, based in Ohio, replacing Tsuneo Tanai.

Ito came from the research-and-development side of the company, which some observers saw as an attempt by Honda to move more quickly into new technologies.

Iwata had been a plant manager in Tokyo after rising up through the engineering side of the company. In an interview last year, Iwata said he would try to bring the U.S. operations back to the basics of manufacturing.

The new executives were announced in February last year, right before Honda made another major personnel move. Instead of layoffs, the company said it would offer buyouts. Workers could apply for a one-time payment in exchange for leaving their jobs.

At the time, Honda declined to say how many workers accepted the offer, only that the number had met the company's goals.

The best guess for the scope of the buyout can be found in Honda's annual report of its work force, published near the beginning of each year.

Last year, the company listed 15,000 workers in Ohio. This year, the total is 13,500, a difference of 1,500, or 10 percent.

The greatest decline was on the production side at the Marysville assembly plant, which has 4,400 workers, down 670 from the previous year.

Meanwhile, the East Liberty assembly plant's employment total changed little, down 70 at 2,400 workers.

The two plants, near each other in Union and Logan counties, are just two aspects of Honda's footprint in Ohio, begun in 1979 with just 64 workers. The company also has an engine plant in Anna, a transmission plant in Russells Point and offices for research and engineering on the Marysville campus. The company had a motorcycle plant in Marysville, but that function was moved to Japan early last year, as planned before the recession.

The job losses were Honda's greatest ever, though they were much less than those affecting some U.S.-owned automakers. In Ohio, GM shut down its Moraine plant near Dayton, leading to the loss of about 4,000 jobs.

'Exquisite but boring'

The economic downturn has overlapped with the introduction of two new or updated products at the Ohio plants: the redesigned Acura TL sedan and new Honda Accord Crosstour crossover.

In both cases, the models came under fire from some in the automotive press for unattractive designs, and neither has achieved enough sales to be called a hit.

The Crosstour, introduced last fall and built in East Liberty, had sold 11,453 units through May. Honda has said it hopes to sell 40,000 for the year, a modest goal that is still within reach.

The latest version of the TL, introduced in the fall of 2008 and built in Marysville, had sold 14,080 units through May. That's down slightly from the previous year and is less than half the highs of this decade.

Stakes were higher for the TL, the flagship of the Acura line, Honda's luxury brand. Company officials have said they're satisfied with TL sales, considering that the recession took a bite from the high end of the auto market.

Both vehicles have won praise for their engineering. This month, J.D. Power and Associates rated the Crosstour best in its segment for initial quality; the TL was second in its segment to a Mercedes-Benz model.

Wolkonowicz, of IHS Global Insight, is impressed with the Crosstour's handling, but he thinks it and the TL are unattractive.

"There seems to be an issue with design," he said. "That seems to be where their problems lie."

This is a departure from previous generations of Hondas, which Wolkonowicz saw as good-looking and timeless. He doesn't know what has changed within the company on the design side.

"The innovation just seems to have evaporated there," he said.

IRN Inc.'s Korth has a more charitable opinion of the vehicles' appearance, but she shares the view that design has not been Honda's strong suit lately.

"Their vehicles are exquisite, but they're kind of boring," she said.

The next major redesign will involve the Civic, scheduled for next year. Production of the compact sedan takes place in Greensburg, but much of the design work is done in Ohio, and many Ohio-based parts suppliers are involved. Competition is about to get much more intense for compact cars such as the Civic. GM is ready to introduce the Ohio-made Chevrolet Cruze, and Ford plans a redesign of the Focus. By investing in small cars, GM and Ford are trying to gain traction in a segment that has been dominated by Honda and Toyota. "We basically have a new game brewing where the domestics are competitive," Wolkonowicz said. This is just one reason Honda can't afford to relax. Workers on the assembly line know what is coming, Bunner said. They have read about the Cruze and the Focus, and they talk among themselves about how Honda will need to respond by making better vehicles. "They're keenly aware that we have this competition," he said.
 
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