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Honda hopes Acura TLX unveiling is turning point in Lexus pursuit

The outgoing 2014 Acura TL will be replaced

The outgoing 2014 Acura TL will be replaced by a TLX sedan that Honda sees as key to the revival of its sagging luxury brand. Credit: Honda

Honda Motor Co.’s No. 2 executive, asked to identify the automaker’s weak spot, spoke bluntly: The company’s Acura luxury sedans have to get better.

The world will soon learn whether they have. Next month Honda will introduce the Acura TLX to replace its aging TL, the brand’s top-selling sedan that was last revamped five years ago. Designed by Honda’s North American unit, the reworked luxury car will be the latest test of the Tokyo-based automaker’s decision to give more influence to U.S. engineers.

“We need an Acura brand to shine among luxury franchises,” Executive Vice President Tetsuo Iwamura said in an interview last week at Bloomberg’s headquarters office in New York. “It’s high time.”

Acura car sales are down 8.6 percent in the U.S. through November. That represents a drag on results for a company with four models — the Civic, Accord, CR-V and Odyssey — ranking first or second in their respective segments. Combined Honda and Acura sales are up 7.8 percent this year, the slowest pace of the market’s biggest automakers and trailing the industry’s 8.4 percent increase through November.

Honda plans to introduce its 2015 model TLX sedan next month at the North American International Auto Show in Detroit, Iwamura said. A modified ILX compact sedan with a more robust powertrain will follow, and Acura’s NSX “supercar,” a high-performance coupe, returns in 2015. Iwamura declined to detail changes to the youth-oriented ILX model.

Berkman’s Role

The job of bringing the TLX to life was entrusted to Erik Berkman, a 30-year Honda veteran who in 2012 became the company’s first non-Japanese head of research and development for North America.

Honda bolstered the U.S.-based operation’s power earlier this year when it created a nine-member North American management board, which includes Berkman, two other Americans and a Canadian. The board is in charge of products and strategy for the region, which generates the biggest share of the company’s global sales.

Berkman was among the engineers who helped the company tackle its last big test: 2012’s on-the-fly redesign of the critically panned Civic. He previously gained stature within Honda for leading development of Acura’s last hit sedan, the 2006 TL that helped the brand reach record sales in 2005. Getting Acura right, after what Iwamura called its “winding path,” is important to tap growing demand for premium vehicles in the U.S. and around the world.

Lagging Lexus

As Acura car sales have fallen, other premium brands have gained ground. Toyota Motor Corp.’s Lexus car sales rose 15 percent in the U.S. this year through November; Bayerische Motoren Werke AG’s BMW are up 9.2 percent; Daimler AG’s Mercedes-Benz, up 14 percent; and General Motors Co.’s Cadillac, up 55 percent. Mercedes-Benz car sales total 183,358 this year through November while BMW has delivered 178,512 cars, according to Autodata Corp.

While Honda derives the bulk of its revenue from mass-market Civic compacts, Accord sedans and small CR-V SUVs, luxury autos ensure better profit margins. The average Honda sold for $25,976 in November, versus $40,597 for each Acura vehicle, according to Kelley Blue Book, an automotive pricing and data company.

For now, Acura sales are sustained by the new MDX and RDX sport-utility vehicles, which account for 58 percent of Acura’s 149,685 U.S. sales through November. Honda sold 62,301 of its four Acura sedan models over the same period, including the large RLX and outgoing TSX, less than half the volume of Toyota’s premium Lexus cars.

‘Big Opportunity’

Acura, created prior to Lexus or Nissan Motor Co.’s Infiniti as a U.S. premium brand, can become a bigger source of global revenue for Honda, said Steve Usher, a San Diego-based equity analyst for JI Asia Research, who rates Honda a buy.

“They are now looking at it on a more global scale,” Usher said. “They’re starting to think about getting Acura to China, and that will be a big opportunity.”

Iwamura said in January that his 2013 goal was a U.S. sales record — topping its 1.55 million U.S. sales in 2007. Lagging Acura deliveries make that unlikely, he said last week. Still, Honda averted a larger blow: that Civic and Accord, cornerstones of success for 30 years, were falling behind competitors’ new compact and mid-size offerings.

‘Strong Again’

A poor review for the 2012 Civic by Consumer Reports sent shock waves through Honda. The company took the unusual tack of rushing out an upgrade — what it calls a “major minor refresh” — that improved Civic’s interior and added a stronger frame that gave it the best crash rating of any U.S. compact.

The revamped Civic and new Accord that came out in 2012 lifted Honda-brand car sales 8.8 percent, outpacing an industrywide average for cars of 5.6 percent, according to Autodata.

“Honda is definitely strong again and, if not boiling over, on a steady simmer in terms of progress and momentum,” said Karl Brauer, industry analyst at Kelley Blue Book.

Honda argues that if fleet sales are removed, it boasts one of the industry’s best growth rates in retail deliveries this year. Retail sales reflect only vehicles sold directly to individuals, rather than to businesses and rental-car companies.

Honda estimates less than 2 percent of its U.S. sales are to fleets. It eschews them to maintain higher resale values for retail buyers, U.S. senior vice president Mike Accavitti said.

Changing Landscape

Like Toyota, Honda is still adapting to an automotive landscape in which quality is a given and companies including GM, Ford Motor Co. and Hyundai Motor Co. now build some of the most compelling vehicles.

“Everybody is better than they used to be,” Brauer said. “You can’t be the clear or easy winner in any segment like you used to.”

Acura’s inconsistent car line has made the brand a laggard in recent years to BMW, Mercedes, Lexus and GM’s Cadillac and Volkswagen AG’s Audi unit. Sales peaked at 209,610 in 2005 and dwindled in 2009, when U.S. auto sales collapsed. Acura deliveries may reach about 163,000 units this year, based on the sales pace through November.

Iwamura said the mid-size TLX sport sedan that replaces the aging TL will be the biggest change for Acura in 2014.

The racing-style NSX that returns in 2015 will be Acura’s performance “halo,” Iwamura said. The car should sell for more than $100,000, he has said. The last units of the all-aluminum coupe were sold in 2007.

‘Big Kids’

Much as 2010 was a low point for Toyota, which had to battle a recall crisis, 2011 was similarly tough for Honda.

The Consumer Reports pan of the Civic came after Asian natural disasters in 2011 — Japan’s earthquake and tsunami, and flooding in Thailand — stalled Honda’s global production for months. A 2011 spike in the yen’s value made sales of Japan- built models such as the Fit subcompact unprofitable in the U.S.

Those setbacks, along with lackluster reviews for several Honda and Acura models, provided an opportunity to try a new approach, U.S. Executive Vice President John Mendel said in an interview last month in Los Angeles.

Honda has struggled with balancing a “small company mentality” with the fact that it now “is sitting at the big kids’ table,” he said.

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