U.S. Markets closed

How Honda turned a hit into a dud, and back into a hit

Rick Newman
Senior Columnist

The 2016 Honda Civic has won the North American car of the year award and a lot of other kudos. But that only came after Honda (HMC) guessed wrong about the mindset of the American consumer and misjudged the resilience of the U.S. economy.

Automakers typically start designing a new vehicle three or even four years before it arrives in showrooms, which means designers, engineers and marketers have to guess about the environment they’ll be selling their products in down the road. In 2009, Honda began drawing up the new Civic due to debut in 2012. Lehman Brothers had just failed, a grueling recession was slamming the middle class and an angry Congress was calling wealthy bankers to testify about how it all happened.

“There was a greater sensitivity to excess,” says John Mendel, executive vice president of American Honda. “We tried to back off the bling. We put the car back to its roots, made it more austere, more practical.” Honda, like all the automakers, was under financial stress itself, and shaving costs wouldn’t hurt, either.

Honda knew before the car even went on sale in 2011, however, that it had undershot the market. “Consumer tastes didn’t stick to austerity,” says Mendel. “The consumer actually came back pretty robustly.” For the time being, however, Honda was stuck with an underwhelming Civic, and everybody noticed. The biggest blow came when Consumer Reports bumped the Civic from the “recommended” list it had long occupied, calling the car “insubstantial” and saying, “there are a lot better choices than a 2012 Civic.” Sales improved from the prior year, as the whole auto industry recovered, but the car and its manufacturer both suffered a black eye.

The fix came quickly. Within a year, Honda had tightened up the car’s performance, upgraded the interior and grafted friendlier styling onto the front and rear. Critics marveled at a revamp done in half the time, or less, than it normally takes. Honda didn’t say so at the time, but there was a reason: “Before we even launched, we knew we had zigged when we should have zagged,” Mendel explains. "We actually launched the remake prior to the launch.” The 2013 Civic got back on the Consumer Reports recommended list, ending the embarrassing episode for Honda.

Around the time of that relaunch, Honda began drawing up the 2016 Civic, which debuted last year. The rebirth of the Civic now appears to be complete. In the U.S. News metarankings, which aggregate the results of dozens of reviews, the Civic is first in its category. “Excellent engineering,” raved Autoblog. “The new Civic has set itself apart,” said Kelley Blue Book. Critics especially like the handsome styling, a generous set of standard features, the upscale interior and tight, sporty handling.

Civic sales are up 37% so far this year, compared with 2015. Virtually all automakers are enjoying strong sales, as low interest rates, falling unemployment and rising incomes stoke sales. “Consumers are feeling pretty good right now,” Mendel tells me in the video above. “We’re seeing the success of this car, just – boom.” A couple performance versions of the Civic are coming, along with a sporty hatchback and plenty of optional configurations. Bling seems to be back, as long as it’s affordable.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.