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Honda returning to full production despite sales declines

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Honda Motor Co.’s reputation for world-class manufacturing may belie a slipping emphasis on design just as the automaker’s North American factories—including a huge plant in Indiana—are preparing to return to full production.

Consumer Reports’ decision this month to pan the Civic, a onetime favorite, shows Honda may need to focus as much on design as it does factory accolades and ramping up after Japan’s March earthquake and tsunami, said Jim Hall, who runs automotive consulting firm 2953 Analytics Inc. in Birmingham, Mich.

“Customers don’t care about how the cars are made,” Hall said. “They care how they drive and how they look. If you are doing an exceptional job building a mediocre product, that impresses the industry but not the buyer.”

Honda, the Japanese automaker that is most reliant on American sales, has sold 2.6 percent fewer vehicles this year in the United States and posted three straight declines in quarterly net income. Hyundai Motor Co.’s U.S. sales jumped 23 percent this year because of gains by its new Elantra compact and Sonata sedan, rivals to Honda’s Civic and Accord.

Tokyo-based Honda is counting on resuming full assembly at its North American plants by September and further improving quality to revive sales. The company’s Greensburg plant in Indiana, which opened in 2008 and produces the Civic, is rated one of the world’s best by J.D. Power & Associates.

The Indiana plant, about 50 miles southeast of Indianapolis in Decatur County, received J.D. Power’s “platinum” award, tying two Toyota Motor Co. factories, based on Power’s 2011 survey of initial quality for new vehicles. Honda factories in Suzuka, Japan and East Liberty, Ohio, also earned Power awards.

In Indiana, Honda plans to add a second assembly shift Oct. 24 and hire 1,000 workers, doubling employment, said Fred Payne, the factory’s manager of corporate affairs.

At full capacity, Honda produces about 100,000 cars a year at the Greensburg plant. A second shift will double that capacity to 200,000 vehicles a year.

The question for some automotive engineering and styling experts is whether Honda is focusing on the right issues beyond production. Consumer Reports on Aug. 1 said it can’t recommend the 2012 Civic, citing a rough ride and noise. The Yonkers, N.Y.-based magazine previously criticized Honda’s CR-Z and Insight hybrids and Accord Crosstour and Acura ZDX wagons.

The Civic’s exterior “is miserably absent of character,” said Eric Noble, president of The Car Lab, an auto-industry consulting firm in Orange, California. “With the previous version, the styling was polarizing, but it did very well in terms of sales. I just don’t see that happening this time.”

Honda’s manufacturing capabilities are “exceptional,” said Jeff Liker, a professor of engineering at the University of Michigan in Ann Arbor who studies factory efficiency. “But it does seem that recently there have been surprisingly many slip-ups in product development.”

Honda took exception to the Consumer Reports decision and says its vehicles, not just factories, are winning awards. The automaker had seven models finish with the highest ratings in J.D. Power’s annual survey of initial vehicle quality.

“We realize that our customers and fans hold Honda to a very high standard,” said Jeffrey Smith, Honda’s assistant vice president for corporate affairs at American Honda, said in an e-mail. Smith said he’s confident Honda’s “products will meet this challenge."

U.S. sales of the Civic slid 9.7 percent in the first seven months of 2011, to 141,577, while Ford Motor Co.’s Focus rose 7.3 percent, to 112,913, and Hyundai’s Elantra gained 56 percent, to 118,482. General Motors Co. has sold 147,620 of its new Cruze model during the same period, and it was the best-selling car in the U.S. in June.

Honda’s success in the 1980s and 1990s was fueled by founder Soichiro Honda’s push for “relentless innovation,” said John Shook, chairman of the Lean Enterprise Institute in Brookline, Mass., and a former Toyota engineer.

“Honda was almost a kind of Steve Jobs figure for the company,” Shook said, referring to Apple Inc.’s CEO. “Perhaps it’s not fully overcome the loss of his influence, really pushing hard for innovation.” Soichiro Honda was involved with the company until his 1991 death.

Honda’s CR-V remains the top-selling sport-utility vehicle in the U.S. for a fourth year, with deliveries up 17 percent through July.

A new version of the compact crossover built in East Liberty, Ohio, goes on sale this year. The Odyssey minivan that was revamped last year is still recommended by Consumer Reports, and Honda is accelerating production at its Alabama plant.

In Marysville, Ohio, a shift on one of two lines eliminated in 2008 will be restored late this year, said Ron Lietzke, a spokesman for the company’s U.S. production unit.

In Greensburg, plant officials are making dramatic changes to the production process. Improvements result from changing the production line’s layout and modifying assembly techniques and not from advanced equipment, said George Grahovac, manager of Greensburg’s parts material department.The plant also is developing simpler production techniques that Honda is adopting elsewhere.

The factory is a “culmination of everything we’ve learned over the past 30 years,” Lietzke said.

New methods include teams of only five workers at an assembly station, compared with 10- to 15-person teams at other Honda plants, and managers working from desks all along the open, paperclip-shaped line, Grahovac said. Those allow immediate reaction when something is wrong, he said.

Liker, the Michigan professor, doesn’t doubt Honda’s factory innovations. It’s the design that needs work, he said.

“They could do a fabulous job in all respects, Liker said. “Except for what the car looks like.”

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