Cub Goes Electric

As I’ve written about before, the Honda Super Cub was the little motorbike that killed off the import motorbike business in the US in the 1960’s. The 50cc Super Cub is still for sale (Honda has sold over 60 million, mostly in developing countries. Now it has gone electric, and it looks pretty cute.

50 Years of Honda in the USA

The new issues of Automobile Magazine just showed up, and in it is an article about the 50th anniversary of Honda arriving in the USA. Honda had a presence as a motorbike company in the US long before it was a car company. How it was able to create a toehold that blossomed into an industry-changing dominance - essentially killing the British motorbike industry in the process - is the stuff of business school legend.

I wrote up a version of this story for my book (which is coming along nicely, by the way), but it didn’t make the cut. I was going to use it as an example of how companies which are adaptive to the changing environment, and their unfolding understanding of the market context, will be able to jump on opportunities as they arise, rather than sticking doggedly to a pre-ordained strategic plan. Here it is below.

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In the late 1950’s Honda contemplated a bold move: entering the motorbike market in the United States. We all know how this story turns out — today Honda is a dominant player in the US, selling a wide range of models in large numbers. But its start could not have been more improbable or less likely to succeed. It was only by staying flexible to an emerging understanding of what the problem — and the opportunities — were, that Honda succeeded in its long shot.

Honda had done well in its native Japan, leaping in a short amount of time to the number one position largely on the strength of its Super Cub model, which was based around a new lightweight, 50cc engine that Honda had developed. The engine was inexpensive which allowed the bike to be sold for a low price, an important factor in Japan’s struggling post-war economy. The Super Cub had also been designed with close attention to customers’ needs such as the ability to drive it one-handed to facilitate carrying a package in the other arm.

At face value, the Super Cub had little appeal for the American buyer. The motorbike market in the US at the time was quite small and dominated by entrenched players such as Harley Davidson, Indian, and imports like Triumph and Moto Guzzi. There were only 1,000 full-time motorbike dealers in the entire country (compared to some 10,000 today), and most bikes were either in the mold of Harley-Davidson — large, heavy, and built for noisy cruising, or were sportbikes made for performance, exemplified by Triumph. Motorbike riders were generally seen as nefarious outsiders, clad in leather jackets and riding in packs to terrorize small towns and cause trouble at funfairs, an image played up by Hollywood — think James Dean, Marlon Brando in The Wild One, and Easy Rider. Furthermore, Japanese products with funny names were looked upon suspiciously by American consumers.

In 1958 Honda dispatched Kihachiro Kawashima (who went on to become president of American Honda) and his assistant, to spend time in the US and scope out the market for Honda’s bikes. Honda had no market research of any kind, and in fact knew very little about America at all. Kawashima’s reaction upon arriving in the US was, “How could we have been so stupid as to start a war with such a vast and wealthy country?”

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The Sorry State of the Car Industry

I’ve been mulling for a few days about writing a post about the current crappy state of the US car industry, thinking about the $25 Billion proposed “bail-out”, the crashing sales, and even the crazy proposed merger of GM and Chrysler. But Thomas Friedman has pretty much written it for me, so go ahead and read it.

How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. It led to a situation whereby General Motors could make money only by selling big, gas-guzzling S.U.V.’s and trucks. Therefore, instead of focusing on making money by innovating around fuel efficiency, productivity and design, G.M. threw way too much energy into lobbying and maneuvering to protect its gas guzzlers.

I’ll just add a few things.

Toyota will become number one

My prediction is that Toyota will move up from it’s #2 slot to be the #1 manufacturer by the end of 2009. Their sales have been impacted by the current economic crisis, just like everyone else, but not nearly to the same degree as GM.

And Toyota’s product portfolio is much more diverse and better protected against parsimonious spending. GM’s is far too heavily skewed toward large, expensive gas guzzling trucks and SUVs, and its small and inexpensive cars are fewer in number and not as good as Toyota’s (with a couple of notable exceptions such as the well-received Chevy Malibu and Cobalt). That doesn’t bode well for riding out a combination of tight consumer spending and credit, and still relatively high gas prices.

GM and Chrysler merger: Huh?

In what universe does the merger of GM and Chrysler make sense? Both companies are in terrible financial shape with the same combination of huge cost structures and poor sales. In fact, Chrysler’s product portfolio is even worse than GM’s: even more skewed to SUVs and big trucks, and its lower end and smaller cars have received universally terrible reviews (Chrysler Sebring, Dodge Caliber).

All of Chrysler’s hot cars are largely irrelevant in a spending-constrained environment: Viper, Ram pick-up, 300, Challenger. Its bread-and-butter minivan has been eclipsed by offerings from Honda and Toyota.

And a merger would certainly result in large numbers of lay-offs as the companies have massive duplication of product lines, production capacity, vendors, and staff. Unless the unions force them to keep the manufacturing workforce, which would just compound the fixed costs problem. Speaking of which…

Plenty of blame to go around

The prospect of a bailout, whether it’s for banks or car companies, makes me queasy. I’m no laissez-fair free marketer, far from it. But the disparity between the logic of bailing out companies that are “too big to fail” and not helping people with comparatively tiny mortgages (or small businesses) who are “too small to care about” is just too disturbing in its hypocrisy. The management of car companies have squandered innovation for decades in favor of lobbying favors, as Friedman points out, putting them in their now perilous position.

But the unions have played their part too, providing a level of cushion for their workers that no other industries have, and in the process helping drive the hand the feeds them into the ground by forcing massive cost structures (health care, retirement benefits, endless unemployment support). A bailout would just encourage that co-dependency and let everyone off the hook rather than calling them to the carpet for it and forcing them to change. Undoubtedly a reset of the compact between automakers and unions would cause massive pain for the near term, but in the long run it would get the industry back on its feet. And without it, they’ll just be back in this same position in 5-10 years.