Corporate / Executive Remarks
Remarks by Steve Center, Morgan Stanley Seminar (Part 1 of 2)
Thank you and good afternoon everyone. It is a real pleasure for me to be here today.
As a proud graduate of the Bronx High School of Science class of 74 - it is great to be back in New York City. I still have a lot of family here - so I look forward each year to the New York Auto Show as an opportunity for a little homecoming.
I am also happy to be here to talk about Acura. And that is saying something. Because there have been a few times in our history when we wouldn't have had much confidence to attend this event.
But today we are riding a string of successes and -- a little over two hours ago -- we offered journalists a first peek at the Acura RL prototype sedan. In a moment, I am going to do the same for you. This vehicle continues Acura's advance in the direction of performance, technology leadership and luxury.
But, before I get into the details of the next RL - I'd like to provide you with a little perspective on the direction of Acura - why we are feeling so confident about our brand and our products - and the positive contribution Acura is making to American Honda's bottomline.
I think most of you know the Acura story. The launch of the Acura Automobile Division on March 27, 1986, was a uniquely historic event, not just for Acura and our customers, but for the entire auto industry. It was the first entirely new automobile division since Lincoln Mercury in the 1950s. And the first Japanese luxury brand of any kind.
The initial model lines - Legend and Integra - were very well received. But more than just introducing a new line of cars, Acura introduced a new level of service. We ranked number one in the J.D. Power Customer Satisfaction Study four times.
Other successes were to come, including the mid-engine NSX in 1991 - an exotic sports car with the unmatched reliability of a Honda Civic. And Acura has been a technology leader - not just within the Honda family - but within the entire industry. And I should point out that, although these technologies were launched more than a decade ago, many still have not turned up in the products of our biggest competitors. Acura has consistently been a pioneer for the industry.
But, I must honestly say, that despite this onslaught of technologies, and despite the fact that Acura was the first Japanese luxury nameplate, the Acura brand wasn't delivering on its original promise. Without wasting your time on the details, we simply were not consistently offering a clear direction or identity of what we wanted to be. This had to be confusing for the customer. And for Acura, it represented a major missed opportunity. A failure to capitalize on our early advantage -- and our technological abilities.
But those days are over. Based on our sales results the past few years - based on consumer research - and based on the feedback we receive from our dealers - there now is growing clarity about Acura as a home for performance driven products that showcase advanced technologies and a brand known for top-class customer service.
In fact, we feel strongly and confidently that we have moved beyond the "turning point" in our turnaround efforts. Acura is rapidly becoming a "destination" brand, actively shopped by customers seeking performance luxury vehicles. No longer the home simply for customers seeking a value price, Acura vehicles now arouse passion.
Sales numbers don't tell the whole story. But they should give you a clear idea of the momentum we're beginning to generate. Acura has now posted five consecutive monthly sales records - including an all-time record last month. We just had our best first quarter in history, sales are up 29 percent from a year ago - which means we are on a pace to break last year's all-time sales record of almost 171-thousand vehicles.
We sell every Acura model we make. We protect the re-sale market - with the highest residuals of any nameplate - which also puts us in a much better profitability picture.
I am not going to throw a lot of research up here on the screen - but I do want to show you a couple of key indicators. Research by Allison-Fisher shows that Acura shopping is at its highest since July 2002 - trailing only Lexus and BMW. And we have leapfrogged several key luxury class competitors in buying considerations among aware consumers.
There is a reason for this success. Our product lineup is better and more balanced than ever. And Acura models are really well-positioned within the luxury segment. We have no intention of going head-to-head with Mercedes and its $90,000 sedans. Most of our products are positioned in the $25,000 to $45,000 price range - which accounts for almost 80 percent of all luxury sales.
Our model direction over the past five years has been consistently moving up into the performance and prestige end of the industry. Based on these strong products, Acura's Brand Position has improved dramatically. According to Allison Fisher data, consumers now see Acura clearly as a member of the performance luxury competitive set alongside Audi.
This does not put us in the traditional luxury area with Lexus and Mercedes. Rather, we are in the vicinity of BMW. And that is precisely the target we set with the revitalization of Acura.
Significantly, Acura has a good presence in every fast growing segment within the luxury class. Of course, when you look at the repositioning of the Acura brand, you have to begin with the MDX. From the moment it was introduced in 2001, this SUV created a powerful halo effect that has lifted the entire brand - attracting true Euro customers for the first time. It debuted at the top of its class - winning virtually every major award. But I think the greatest tribute to this model is that through continuous improvement, it remains at the head of the class. As a very successful dealer in California told me last week, "The MDX is exactly where luxury SUV customers want to be."
For instance, this year's MDX gets more horsepower, additional interior features, new exterior styling and a new sound system - all designed to help it maintain its position as the benchmark luxury SUV. And this after adding 30 new features for 2003.
Even with the launches of XC90, RX 330, and Touareg -the MDX remains strong. As you may know, American Honda employs lower incentives than anyone in the industry. And in this 4th year of its life cycle, MDX - the most profitable vehicle in our lineup - is still a top seller without incentives. Three years after its launch, there is still a waiting list at many dealerships across the country.
Building on this momentum, last year - while many customers were looking ahead to the fully redesigned TL - we surprised them with an all-new model, the TSX. We envisioned TSX filling the gap in the Acura line-up between the RSX and TL. But TSX accomplished much more than that. Perhaps some of you saw this billboard downtown - but enthusiasts sure have taken notice. Car & Driver magazine named it one of the ten best cars in America. Most importantly, our customers have taken notice. TSX has attracted the young upwardly mobile buyers it was designed for. Almost 45 percent of the buyers are under the age of 35.
Last year, we forecast sales of 15-thousand units - but beat that goal by more than 20 percent. As for profits, basically every one of these sales has been a full gross deal and we expect both profits and demand to remain high. From an original sales forecast of 24,000 units, we are now expecting sales of 30,000 units this year.
On the heels of this unexpected -- yet undisputed -- success, we launched an all-new TL last fall. The previous TL was pretty darn good. It virtually sold itself for more than four years and had the highest residuals of all its competitors. But where the last TL was a success based largely on its value, buyers of the 2004 TL place emotional reasons as high as value as top purchase considerations.
The all-new 2004 TL debuted last fall and continues to set monthly sales records. But TL is far more than a sales success. As Automobile magazine put it - "This is not just a TL makeover; it's an Acura makeover." And both our consumer research and dealer feedback supports that statement. When you look at consumer intenders planning to buy a car in the next six months, the TL has gone from mid-pack to second. Next year, we hope to be number one.
TL is bringing in customers to the brand that we never thought we'd get. dealers are saying they never thought they'd get so many BMW owners trading in their cars - 3s and 5s. And that is not in any way a knock at BMW. They make great vehicles. It just says something good about Acura.
But the young buyers of today want more than just go, stop, turn. They want the latest in advanced technology. And it is here, starting with TL and next with the all-new RL - that Acura is taking the lead and setting a new industry standard. TL is the first vehicle in North America equipped with a standard DVD-Audio 5.1 surround sound system. And the first with a standard HandsFreeLink' phone system allowing calls to be made through the car's audio and voice recognition systems.
You may not hear many automakers at this event brag about their sound system, but the Acura/ELS Premium 8-speaker Surround Sound is a real breakthrough. The result is a huge increase in fidelity with 500 times the resolution of CD audio.
This ELS Sound system is not some off the shelf product. Honda R&D worked with Panasonic and a top music producer in its development. Road and Track magazine said it rivals "the best concert halls in the world." And - along with the car - I encourage you to give the sound system a spin.
We are projecting first year sales of 65,000 vehicles. But the net effect of our early investment in advanced electronics is that there is more equipment on TL at $33-thousand than other vehicles at 45-thousand and up. Compare our pricing versus TL's competitive set and you can see that we are positioned very competitively. And, when you factor in the TL's advanced content and new technology we end up with a significant advantage.
I think this demonstrates the strength of Acura's strategy of offering our customers only fully-featured vehicles. Generally speaking, this means to apply as standard equipment, "luxury" features that our key competitors consider options - or include only in packages.
For instance, the TL price includes every feature - with only two options for the voice recognition navigation system, and special high-performance tires for the 6-speed manual. And our customers are embracing the navi system - for another two-grand.
We originally forecast the navi at about 25 percent of sales. We are now going to 40 percent and still having trouble meeting demand. But even an attractive feature like XM satellite radio is standard on all models - except the RSX. High power audio systems - either BOSE or ELS - are standard everywhere. And HID headlights are standard on the TSX, TL and RL.
This fully-featured strategy is key to elevating the prestige of our products and attracting luxury class customers. But it has other benefits as well - making products easier both for our factories to build and for dealers to order.
Another important standard feature of Acura vehicles is safety. This is consistent with Honda's global "Safety for Everyone" commitment. Both the TL and TSX earned the highest possible rating for frontal crash tests -- "best pick" and "good" designations from IIHS and a 5-Star rating from NHTSA. These vehicles join the Acura MDX as best in class performers in safety. This is another important and growing consideration for consumers. More than that, safety technology - as with our leading environmental technologies - is one less thing we will have to invest in when new regulations take effect. We are well ahead of the competition in most of these areas.
(Continued in part 2)