If there is one Japanese company that can lay claim to having a reputation for innovation and advanced engineering, it is Honda.

It is a reputation built over more than 30 years, starting from the first generation of the Civic in the ‘70s and continuing throughout the years with novelties such as VTEC, the futuristic first generation Insight hybrid back in 1999, the S2000’s high-revving 120HP-per-liter engine, the first practical supercar, the NSX – and the list goes on.

However, something seems to have changed, and not for the better.

In the USA, the Civic enjoyed a long and distinguished career as a reliable, frugal and well-made car. But when the new Civic sedan and coupe made their debut at the New York Motor Show last April, pundits were less than impressed. Then came the Consumer Reports test, and all hell broke loose.

While the Civic’s predecessors had often been Consumer Reports’ highest rated small sedans as well as “Top Picks” in five of the last 10 years, the new model scored too low to be “Recommended”. To make a bad situation worse, it was placed second-to-last in CR’s ratings of 12 small sedans, followed only by the revamped Volkswagen Jetta.

Is it because Honda decided to cut corners in designing the ninth generation of the Civic, reducing costs and, in the process, quality, or is it that the competition like Hyundai’s Elantra, have improved greatly in their latest iterations, catching up and even surpassing the establishment?

“When I saw the interior of the new Civic, it worried me” Tatsuo Yoshida, an auto analyst at UBS Securities, told Reuters. “The mileage was impressive. But Korean brands are upping the ante with game-changing improvements to their cars’ interior. For people buying a new car for the first time, they are becoming an increasingly attractive option”.

A more worrying prospect is the one expressed by Edmunds.com analyst Bill Visnic: that Honda is slowly, but surely, losing its character: “Honda built its reputation on engineering excellence. They are now becoming kind of a very normal car company”.

American sales are very important to Honda since the US is its biggest market, accounting for almost 30% of its global sales.

But the game is far from over as in 2010, Honda held a 10.7 percent share of the U.S. car market making it the country’s number four automaker with three of its core models, the Civic, the Accord and the CR-V, occupying the first or second place of their respective segments.

Moreover, it seems that Hyundai is not stealing so many sales from Honda as the Civic’s share in its segment has grown 2.7% in the last four years.

Apparently, the Koreans are filling in the void left by defunct brands like GM’s Saturn and Pontiac. Moreover, it is difficult to judge buyers’ reaction to the new Civic since the March 11 earthquake in Japan has reduced inventory for all Japanese brands, with Honda’s US sales recording a 10% drop so far this year

Even if sales of the Civic improve, Honda needs to do something fast. According to J.D. Power, Honda’s main strength was its consistently high ranking in durability and reliability studies. That’s what convinced many buyers to choose one of the firm’s cars. In J.D. Power’s latest report published in June, Honda still held the number one spot among the mass-market brands. In contrast, Hyundai ranked below average.

However, in another study that measures overall appeal, J.D. Power reported that Hyundai was the most improved brand: “Reliability is important,” admitted J.D. Power’s director of automotive research Raffi Festekjian. “But you know what? You still need to make a vehicle than is appealing, fun to drive and comfortable to sit in”. Unfortunately for Honda, in this survey it was fourth from the bottom.

Our take is that Honda needs to reinvent itself by bringing back some of the engineering magic that made its products stand out from the crowd and devote more resources on the design aspect of its cars as styling is becoming an increasingly important factor in consumer choice these days.

The Japanese company could communicate these changes with the introduction of one or more “halo” cars such as a replacement for the S2000 before applying them on mainstream models like the Civic. Lets not forget, Honda established the reputation of being an innovative automaker with cars like the S2000 and the NSX (sold as an Acura in North America but as a Honda in the rest of the world).

Story sources: Reuters

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