Honda Announces a Massive Minivan Recall. Will Rivals Rejoice?
Over the weekend, Honda announced a recall of some 886,815 model year 2005-2010 Odyssey minivans manufactured from June 23, 2004, to Sept. 4, 2010. What exactly is wrong with them? Oh, not much. Just a potential fuel leak ... that could cause the minivans to burst into flames.
This was most definitely not the kind of news that Honda owners -- or Honda Motor Co. Ltd. investors -- wanted to hear.
Long considered the gold standard in family-friendly minivans, Honda's Odyssey has been a lone bright spot on Honda sales lots this year. In February, for example, Honda reported a 7% year-over-year decline in U.S. sales by its Honda and Acura divisions combined. This was its second straight monthly decline, and the second-worst performance among the eight remaining really big automakers -- Honda, Nissan, and Toyota from Japan, Ford , General Motors , and Chrysler from the U.S., Germany's Volkswagen, and South Korea's Hyundai/Kia.
Only Volkswagen did worse than Honda in February, posting a 13.8% decline in sales. Yet amid the gloom, Honda's Odyssey shone out with a 4.6% rise in sales year over year -- 8,945 units sold in the year's shortest month.
Odyssey sales could go nowhere for months
Repeating that feat may prove difficult for Honda in the face of the bad press from a near-900,000 vehicle recall.
Granted, the recall doesn't concern new Odysseys. But still, the fact that Honda admits it currently lacks an upgraded replacement part, free from the defect that necessitated this recall, won't do the company's reputation for quality any good. It won't be till next month that Honda even begins sending out notices of the defect, warning owners of the problem (and keeping the story alive in the process). Then, once made aware of the defect, Honda owners will have to wait until "summer" before they'll be allowed to bring their vehicles in to the dealer for a permanent fix.
This may give rivals such as Chrysler -- always a force to be reckoned with as inventor of the minivan -- a chance to convince would-be Odyssey shoppers to consider other options. Chrysler posted the second strongest sales gains among automakers last month -- up 11% year over year. The company boasted that Town & Country minivans had their "best February sales in two years and its seventh-consecutive month of year-over-year sales gains." Dodge Grand Caravan sales were up 1%, in line with growth at Town & Country.
Meanwhile, Ford Motor (which didn't have a particularly strong sales month in February) will be trying to get some traction with its new Transit Connect minivan -- and to capitalize on the success of its minivan-like Ford Flex SUV. Despite posting overall sales declines of 6.1% in February, Ford noted that the Flex posted a 19% increase in sales in the month, "one of the strongest sales gains of any Ford Motor Company product," according to automobilemag.com.
The upshot for Honda
In the grand scheme of things, paying to repair recalled vehicles isn't often huge expense for automakers like Honda. (In fact, by bringing customers in the door, recalls may pay for themselves by giving car dealers a chance to upsell, advertise new vehicles for sale, and so on). The bigger risk for Honda is that after a string of hi-profile recalls in recent years, another recall of a popular product like the Odyssey could tarnish its reputation as "the gold standard" for minivans.
Expect Monday's stock price to reflect this fact.
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The article Honda Announces a Massive Minivan Recall. Will Rivals Rejoice? originally appeared on Fool.com.Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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