Given all of the drama in the auto business in recent years, it's been easy to overlook Honda (NYSE: HMC). After all, it hasn't had the epic global growth (or epic recall drama) of Toyota (NYSE: TM), nor a dramatic near-death-and-rebirth story like Ford (NYSE: F).
Instead, Japan's No. 2 automaker has been cruising along, continuing to pay a modest dividend to shareholders despite the global economic crunch, and continuing to keep its loyal customers happy with great products.
Or has it?
The part about the dividend is true enough -- though with a 0.9% dividend yield, I'd hardly call Honda a dividend champ -- but the rest?
CAPS players have given Honda's stock a five-star rating, but I think there's a case to be made that Honda's coasting on its past achievements. Given the competition, that's a bad plan.
It's not your father's Honda
Many of us formed our impressions of Honda's cars years ago. I'm no exception -- my dad bought his first Honda, an Accord, in late 1979. It was the first of three Hondas he'd own during the 1980s. None of them were speed demons, but the handling and build quality were miles beyond the Detroit products we were used to. And we weren't the only ones to notice: Honda's sales soared through the decade.
But now? For the most part, Hondas still do well in those all-important Consumer Reports reliability surveys. But they've got a lot more company in the top tiers of the magazine's comparison tests -- from Hyundai, Nissan, Subaru, Ford, and (believe it or not) even General Motors.
Hondas are still reliable, in other words, but that's not as much of an edge as it used to be -- everybody has upped their quality game. Sure, Honda still sells plenty of cars. But the innovative edge on which the company built its reputation seems to have disappeared. Review after review says much the same thing: Honda's cars are good, but not great. With a couple of shining exceptions, Honda seems to have gone from building great products that drive growth to building good-enough products that (mostly) keep loyal customers coming back.
The last automaker to try that strategy was General Motors, and we all know how well that worked out. Standing still -- even for Honda -- isn't good enough in today's ultra-competitive global marketplace.
Hey Honda, where's your electric car?
Electric vehicles are about to be huge -- but Honda seems to be missing in action. After years of talk, the EV space is about to heat up for real, with Ford and Nissan and General Motors joining hybrid kings Toyota on one side, and upstarts like Silicon Valley's Tesla Motors (Nasdaq: TSLA) and Berkshire Hathaway (NYSE: BRK-B) backed Chinese automaker BYD (OTC: BYDDY.PK) on the other. Honda, who should have absolutely ruled this space by now, instead looks like a Johnny-come-lately with what seem like hastily drawn-up plans to launch EVs... at some point.
Meanwhile, the company's hybrids -- another corner of the market that Old Honda would have owned -- look like also-rans in the shadow of Toyota and, increasingly, Ford. The company's new CR-Z hybrid is a tiny two-seater, just like its pioneering 49 mpg. Insight was back in 1999 -- but this one can't even match the Prius's fuel economy numbers, much less break 60 mpg on the highway like its predecessor.
Speaking of Honda's hybrids, while the company may not have Toyota-sized quality troubles, it's had surprisingly un-Honda ones. Consider the Civic Hybrid's batteries, which are developing a reputation for dying years ahead of schedule. Honda recently introduced a software "fix" for the problem, but owners contend that the fix lowers the car's mileage from around 45 mpg to a much more pedestrian figure in the low 30s.
Not good, especially when Toyota's hybrids -- and Ford's -- just seem to keep cruising along.
A spark of hope?
Every company has recalls and quality issues from time to time, of course. But there's more serious evidence that Honda's product development has gotten off track. The current Civic, in many ways the company's bread-and-butter model, is almost five years old. That's not exactly ancient -- except that Honda has for years replaced the Civic on a rigid four-year schedule, and apparently the most recent edition was sent back to the drawing board shortly before its planned launch.
Why? Honda isn't saying, of course. But ironically, it might be a good sign: As we all know, the first step to fixing a problem is to acknowledge that it exists. But I think I need to see more evidence of a product turnaround before we can call Honda's stock a buy.
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This article was originally published by The Motley Fool.