Feb 10th - Fit Compact Holds Lesson For Honda Management

Honda Motor Co. is much talked about by auto industry analysts, who marvel at the Fit compact's brisk sales and the automaker's rapid earnings recovery.

The Fit HV has the same power system as the Insight to cut costs.

A look behind the scenes at the development of the Fit Hybrid, which was launched last October, helps explain the mystery.

In June 2008, 25 people overseeing the rollout of the new model gathered at a hotel in the resort town of Nasu, Tochigi Prefecture. People in the marketing department had asked that car's design not be changed, citing the existing model's solid sales. The development team disagreed, saying it wanted the car to evolve.

Honda has a tradition of hosting "camps" during the launch of a new model to let people from various departments mull things over. Although there were many different views about what kind of car the Fit Hybrid should be, there was one point on which all agreed: the need to cut production costs.

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Honda has lagged behind rival Toyota Motor Corp. in hybrid vehicles. Auto sales have been slow and consumers are reluctant to splash out on expensive cars. But simply slashing the price would make the new model unprofitable and the management would not likely approve the project in that case.

The key to resolving the problem lay in borrowing from Honda's Insight hybrid, said Kohei Hitomi, head of the Fit Hybrid project. The cost of hybrid power systems is a major factor in the price of the cars. Thus, turning out affordable cars depends on holding that cost down. Using the power system from the Insight would let Honda save on development and production costs and boost profits through economies of scale.

But there was a big obstacle: mounting the Insight's 40-liter gasoline tank on the much smaller Fit.

Break from tradition

Honda had been here before. Five years earlier, when the Insight was being developed, engineers working on the two models worked closely together even before they knew whether the Fit Hybrid would go into production. They created designs to that would allow the same power system to be used on both.

Honda used to design auto bodies from scratch for each new model just for the challenge. Joint development of the two hybrid vehicles was thus a break from tradition.

Honda rolled out another hybrid, the CR-Z, last February. The CR-Z has a sporty look but it shares about 20% of its components with the Insight and around 10% with the Fit. The popular Freed minivan is based on the Fit's chassis. Honda is now using common parts in as many models as possible.

The carmaker is also taking a second look at sales over the past couple of years to eliminate waste and focus on its most popular models to maximize economies of scale. Even the hallowed Civic was not immune from scrutiny. Honda pulled the Civic from the Japanese market at the end of last year.

This "selection and concentration" strategy is paying off. The Fit made up 54% of Honda's domestic sales in January.

Honda President Takanobu Ito said Honda cannot survive as a big company, so he wants to turn it into a great mid-sized firm that can quickly adapt to new circumstances. As a company, Honda is adopting what could be called "Fit management" -- trying to become small, nimble organization that brings in big profits.

Honda plans to launch its first hybrid wagon, the Fit Shuttle, next month. This year marks the 10th anniversary of the model and it seems destined to play an increasingly important role in the company's future.