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The Future of Hybrid Electric Vehicles

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Honda is a well-known and reputable car manufacturer in North America. It is now 2002, and Honda is planning on launching its second Hybrid Electric Vehicle (HEV) to the market - a hybrid version of Honda's top selling vehicle, the Civic. The company's first HEV, the two-seater Honda Insight coupe, was introduced to the U.S. in 1999. It experienced modest sales of 3,788 units in 2000 and 5,000 units in 2001 and retailed at a base price of approximately $19,100. However, demand outstripped supply and consumers were forced to wait between one to two months for their vehicles.

Honda anticipates that sales of the hybrid Civic model will be much stronger than previous HEV models, since the Civic already possesses a longstanding, strong brand name. Right now, Honda must decide if they are willing to launch the hybrid Civic and make it a part of its production line-up, despite the uncertain reception of the vehicle in the market and the risk of a potential loss in profits.

Problem Statement

The problem that Honda faces right now, which could hurt the company’s overall profits, is that consumers are not well educated and informed about the benefits that this hybrid technology can offer. In other words, the positive features of a HEV have not been marketed well enough to change buyers’ outlook on transportation options and train them to look beyond the price premium (of up to $5,000) and buy a hybrid car. According to a large-sample survey of recent car buyers, the top three factors that were identified as being most important when purchasing a car were “reliability”, “value for the money” and “well-made vehicle”. Similarly, auto dealers stated that buyers routinely ranked “functionality”, “safety” and “price” as important factors when shopping for a car. Factors, such as “gas mileage”, “technical innovation” and “environmentally friendly” were also listed, but were all ranked well below the top five. Therefore, Honda is faced with the obstacle of teaching buyers to consider other aspects when purchasing its new Civic hybrid model.

Situation Analysis

The automobile industry is a very mature and is based almost entirely on gas engines. It is a highly competitive and consolidated industry, however, Honda differentiates itself with a value strategy.

Internal Analysis


Honda Motor Company has a very strong reputation around the world for building quality, reliable and performance-oriented automobiles, motorcycles and power equipment. Honda has traditionally focused heavily on R&D capabilities and thus it tends to be on the cutting edge of automotive technology.


Adding high tech and performance-oriented features to their cars has meant that Honda has occasionally had to recall their products, leading to a weaker brand image. In addition, the spending on R&D has led to declining operating margins while the market share is threatened by huge lineups from Toyota and Nissan.


There is an upsurge of interest in environmentally friendly vehicles, and Honda’s R&D focus means that it is well poised to capitalize on its expertise in this industry. In addition, Honda is a major player in the emerging markets (BRIC countries).


Rising oil and raw material prices in the world market can lead to decreased demand for automotive vehicles. In addition, increased costs have led to decreased consumer spending and the competitive rivalry is very high in this industry.

External Analysis

Political - There is increased pressure on governments from lobby groups to provide tax incentives and subsidies to encourage consumers to purchase more environmentally sensitive products. In addition, the Kyoto Accord has led to a renewed focus on reducing pollutants.

Economic - Rising gas prices and increased costs of cleaning pollutants have started hurting the consumer’s pocketbooks.

Social - Consumers have a higher awareness of the hidden costs of pollutants, and are also more sensitive to prices. Therefore, there is a large number of consumers who are willing to pay for technology and products that will help the environment.

Technology - Recent R&D investment into hybrid technology has led to significant gains in efficiency and reductions in cost of the technology.


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