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Honda Fit designed as ‘Prius-killer’ in challenge to Toyota

by Ma Jie and Yuki Hagiwara

Bloomberg

Honda Motor Co. wants to remind the world that hybrid means more than the Prius.

Japan’s third-largest carmaker last month started selling a new version of its Fit compact at home, including a hybrid designed to take on Toyota Motor Corp.’s global dominance in sales of fuel-efficient cars.

Honda says the Fit hybrid gives better mileage and costs less than the Toyota Aqua, a smaller take on the Prius that’s known as the Prius c in the U.S. In the first four weeks, sales and advance orders reached 62,000 units — four times Honda’s forecast, with about 70 percent of them hybrids.

“The Fit hybrid may be an Aqua-killer,” said Yoshiaki Kawano, an analyst at IHS Automotive in Tokyo. “It’s possible Honda will come very close or even overtake Aqua in sales.”

It has some way to go. Toyota sold 182,135 Aquas in the first eight months of this year, more than double the shipments of the Fit, Japan Automobile Dealers Association data show. The older Fit was for sale most of that time.

Cutting Toyota’s lead in Japan would not only burnish the image of Honda’s new technology in the only major market where hybrids outsell gasoline cars, it would add momentum to Honda as it challenges Toyota’s Camry for the No. 1 slot in the U.S.

Since introducing its first hybrid in 1999, two years after Toyota’s Prius went on sale in Japan, Honda has struggled to catch up. While Honda was first to the U.S. with its Insight hybrid, Toyota’s second-generation Prius became the car that captured Americans’ imagination.

Honda sold 231,440 hybrids worldwide last year, compared with Toyota’s 1.2 million. Toyota’s Prius and Aqua are Japan’s two best-selling models, followed by the Fit.

Honda lost out because it stuck to a simpler, smaller system to drive its cars that used a combination of electric and gasoline power at all times, according to Clive Wiggins, a Tokyo-based analyst with Macquarie Group Ltd. Toyota developed hybrid technology that let cars alternate between battery power and a gasoline-burning engine, which increased fuel efficiency.

A change of tack means Honda’s new models have adapted and can compete head to head. The hybrid Honda Accord, set to reach American showrooms this month, is rated by the U.S. Environmental Protection Agency to get 76 km per gallon (20 km per liter) of gasoline in combined city and highway driving. That ties Ford Motor Co.’s Fusion for the highest among midsize sedans.

The Camry hybrid gets a 17.4 km per liter combined rating, while the Prius and Prius c are rated at 21.3 km per liter.

Challenging Toyota with hybrids in the U.S. would put Honda a step closer to a long-sought comeback. The Accord last topped the Camry in U.S. sales more than a decade ago. It has narrowed the gap in 2013, selling 282,102 units through September, against the Camry’s 318,990.

In Japan, the revamped Fit will probably log about 200,000 deliveries in its first full year on sale, around the same as the Aqua, said Koichi Sugimoto, an auto analyst at BNP Paribas in Tokyo.

The last time Honda’s small car topped Japan’s monthly charts was in May 2011, before the Aqua was introduced, JADA data show.

“It’s a long-awaited release, and the first global model targeting emerging countries as well,” said Kota Yuzawa, an auto analyst at Goldman Sachs Group Inc. in Tokyo. “It’s a very important model for Honda’s stock price.”

The shares may rise 27 percent in the coming year, based on an average forecast of analysts tracked by Bloomberg. Only 1 in 23 recommend investors sell Honda’s stock.

Honda has shown such gains can be fleeting: The company’s Insight made history in April 2009 when it became the first hybrid to outsell all gasoline-only models in Japan. The Honda Fit was No. 2. Toyota’s Prius lagged behind at 21.

By May, the Prius topped the chart, where it jostled for leadership with the Fit until the late 2011 introduction of the Aqua relegated the Honda to a distant third place.

The new Fit shows Honda has switched tactics, sacrificing some profitability to ensure the car is priced competitively, said Goldman’s Yuzawa. The least-expensive hybrid costs ¥1.63 million in Japan, 3 percent less than the Aqua’s base price, even with a fuel efficient semi-automatic transmission and a lithium-ion battery.

“They are ready to fight against Toyota in terms of technology,” Yuzawa said. “They really want to be No. 1.”

Toyota will probably fight back by improving the Aqua’s fuel economy or cutting prices, Yuzawa said.

Toyota always seeks gains in efficiency, said Shiori Hashimoto, a spokeswoman. She declined comment on specific plans.

“They will certainly come up with better fuel economy in the next Aqua and then we will have to make ours even better,” Takashi Imai, the Fit’s Japan sales chief, said in an interview. “This war is never going to end.”

  • Starviking

    If only Honda would put a little more effort into English too. Their Fit 3 ad announces:
    “The Japan Pride”

    Sorry, nothing to be proud of with such mangled English!