Key to the Highway

Observations about cars and the auto industry

Honda Cancels the NSX and Other Economic Ripples

Autoweek reports this morning that Honda is canceling the NSX supercar project, the announcement coming from company President Takeo Fukui. The new version of the NSX was slated as a 2010 model with a front-mounted V-10 engine putting out 500 horsepower. A prototype was seen testing at the Nurburgring in Germany during the summer. But the economic crystal ball that was only cloudy six months ago has turned into a lump of obsidian.

This is the latest in a string of announcements from automakers that are cutting high-dollar, low-margin programs—many of them in motor sports. Nearly two weeks ago, Honda announced it was pulling out of Formula 1. With the free-fall sales drop of 32 percent in November U.S. sales compared to a year ago, the company is also holding up expansion of a plant in Turkey and construction of one in India. Audi has withdrawn factory teams from American and European Le Mans Series, Porsche from ALMS, Suzuki and Subaru from the World Rally Championship. NASCAR teams are also feeling the pinch, with Richard Petty’s operations being absorbed by Gillett Evernham Motorsports.

However, Honda and other manufacturers are making the kinds of cuts that more than suggest their economic outlook is gloomy beyond even the first three-quarters of 2009. It’s one thing to mothball an expensive project like the NSX, it’s quite another to keep plant capacity static. Given the time it takes to ramp-up output, the no-growth philosophy also has its roots in excess inventory.

The larger Japanese manufacturers have done a pretty good job the past few years at keeping inventory levels at 45 days or less, while the Detroiters’ goal of 60 days only vexed Chrysler. All that has changed as this year comes to a close. Several companies, including Mercedes-Benz, are renting as much space as they can get to store cars that no one is buying.

When economic daylight returns, pent-up demand will absorb the excess inventory, but it doesn’t sound like automakers want to risk being even slightly ahead of the curve. It could very well be that they not only fear the lack of demand in the next year, but also the kind of low, single-digit growth maturity in their major markets that at one time seemed years away.

Regardless of when the world emerges from this recession, the automobile market will look different than it does today. Not necessarily prettier. Just different.

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