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At the Honda (NYSE:HMC) breakfast (yesterday morning), John Mendel, Senior Vice President, Honda Motors presented the company’s thoughts about the future. A lot of it was product specific, which I will leave out. But, I did want to share a few key things he discussed. Introducing him, Don L. Keithley (of Bel Air Partners) said JD Powers and Associates reports Honda vehicles 3 years old retain ~68% of their transaction price (amazing residual!). So Mr. Mendel jumped in (with one of his first slides) explaining why the company’s vehicles are able to hold their residual values so well: it stems from “a disciplined marketing approach.” Specifically, he said they offer no direct cash rebates, they do not sell to fleets, and this preserves the brand image and the customers’ investment (i.e. residual value).

Throughout the presentation Mr. Mendel emphasized that there are two ways to play the market: 1) discount, or 2) differentiate, and clearly they have chosen the path of differentiating. I also appreciated Mr. Mendel’s more pragmatic view of the market. He did not give an industry forecast, but he was very clear that Honda has benefited from entering product segments (specifically light trucks and SUVs) where they had not competed before so “the low hanging fruit is gone.” As someone who is constantly trying to look for the risks of investments, I appreciated this candid view of the market, and like I said, Mr. Mendel’s emphasis therefore on trying to create differentiated product to remain a considerable force in the industry.

He outlined the company’s core strategy of providing (1) clean (fuel efficient,) (2) safe (for everyone), and (3) fun (to drive) vehicles. I guess when Mr. Honda founded the company, the vision and approach to the business was that they need to leave the world a better place than where they found it, and this is why they continue to focus on fuel efficient vehicles. I think most automaker’s recognize the need to produce more fuel efficient vehicles. However, you have to admire the company’s average 29.2 miles per gallon for their model year 2005 vehicles. Like I said, a lot of the conversation focused on the company’s upcoming products and advantages in terms of cleanliness (fuel efficiency) and safety.

But the last two things I wanted to conclude with from Mr. Mendel’s presentation were my thoughts on store productivity and the “evolution of luxury.” In the area of store productivity, Mr. Keithley at the end of the presentation commented that Honda has doubled its sales (I think over the last 10 years), but the store count has remained virtually unchanged. So I asked Mr. Mendel what the company’s future plans were for its footprint of retail stores in the United States? He said that beyond some add points and market specific (store) needs, he did not see a big increase in the number of Honda stores in the U.S. population. This is a question (issue) I think more retailers need to focus on with manufacturers to avoid (versus react) to dealing with an “overdealered” market such as what GM (NYSE:GM), Ford (NYSE:F) and Chrysler (DCX) seem to be facing now.

Finally, Mr. Mendel talked about how the notion of luxury was evolving. Specifically he titled the slide: “the evolution of luxury.” He said the idea of luxury is changing with the younger generation. “Old luxury” he said was an “end game.” It was a sign of “arrival,” a status symbol if you will. The “new luxury” is a “means to an end.” Luxury is a way of enhancing your life. It is experiential. And I think he makes a very valid point, and retailers and investors should take note of this shift occurring among the generations. Successful auto retailers and even manufacturers will need to be able to demonstrate to the customer how the product enhances their life, not that it just puts them in with the “elite” because they can afford a $90,000 vehicle. Just something to chew on over the weekend. Have a great one!

HMC 1-yr chart:

HMC 1-yr chart

Source: My Breakfast With Honda Motor Co.