Honda Profit Takes Hit in China

By Brendan Moore

08.05.2007

Honda’s profit margins are tanking in China. The perpetrator is the Toyota Camry and the victim is the Honda Accord. The Camry is proving to be a tough opponent in China, the world’s second-largest auto market. So tough that Honda has had to resort to hefty incentives in order to make their Accords go away.

The Honda Accord in China now has sales incentives of approximately 20,000 yuan (around $2650 USD) per sale, which puts it just under the incentives offered on the Accord ($3000 USD) in the U.S. The reason the Camry is stomping the Accord in China is the same reason the Camry is slapping around the Accord here in the States: the Accord is an old model that needs freshening, and the freshening doesn’t happen until late 2007. China will get the next-generation Accord shortly after the United States sees it.

The new Accord is expected to breathe new life into sales of the Accord in China as there is a high level of anticipation regarding the new model.

Honda needs for the Accord to be successful in China because it accounts for 38% of its production in China. Honda has already slashed its profit forecast in China this year, and is not alone in this regard. Every automaker in China has been under intense price pressure in the last few years as every player has tried to cut prices in order to increase sales. The resulting price wars have driven the average profit margin of auto companies from a lofty 9% in 2003 to 3.1% in 2006. The end of 2007 is expected to show a further drop in average profit margin.

The Honda Accord sold 64,443 units in the first six months of 2007, and the Toyota Camry sold 80,664 units in the same period.

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Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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1 Comment

  1. The Chinese are figuring out what the rest of the world all ready knows. Toyota makes the best car. Toyota is going to drive every other car company out of business in the next 25 years because no one can compete with their quality, their style, and their longevity. TOYOTA RULES!

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