The Honda Civic: If it Ain’t Broke, Go Ahead and Fix it Anyway

After only one year of production, the recently redesigned Honda Civic has already gone under the knife for the’13 model year to give the entire vehicle a major refresh. Enhancing a vehicle this early in its product lifecycle could usually be chalked up to poor sales, but quite the opposite has happened with the Civic. Through the first 11 months of this year Honda has managed to sell almost 285k new units, more than any other car in this segment and 31k more units than second place Toyota Corolla.

Looking back over the course of the past five years, the Civic has always landed on top of the new sales leaderboard, with the exception of the production-disrupted ’11 calendar year which was won by Chevrolet’s Cruze. Historically the ranking has typically been Honda Civic coming in first, followed by the Toyota Corolla in second place, Ford Focus in third, and finally the Chevrolet Cruze (’11-’12) or Cobalt (‘08-’10) in fourth. The same ranking also currently holds true so far for the ’12 calendar year.

What would cause a manufacturer who’s currently on track to have their best compact car sales year since ’09 decide to reinvest so much money and manpower into such a new product design? "Our industry has never been more competitive or fast changing, and a significant refresh of Civic, America's best-selling compact car, just one model year after its debut as an all-new model shows true speed to market," said John Mendel, American Honda executive vice president of sales. But there’s more to the story than just the competitive nature of the market. Since its reveal, the ’12 Civic has been subjected to lackluster reviews and criticism from many media outlets for Honda’s heavy use of cheaper interior materials and an exterior that was hard to differentiate from the outgoing model.

Anyone who has driven the ’12 Civic will agree that it’s not a bad car, but also that it’s not the excellent redesign expected of Honda, particularly with tighter competition across all market segments and the progressive movement away from the days of building boring appliances on wheels. Honda executives realized this early enough in the Civics’ product lifecycle to correct what could have potentially turned into a loss of sales – and brand equity erosion – down the road. For the ’12 model year a combination of incentives, brand loyalty, and brand perception (think “safe bet”) have keep buyers coming through dealership doors.

A brief look at average incentive spending for the compact car segment shows that Honda has goosed spending over the course of the past three months in an effort to clear out ’12 inventory to make room for ’13 units. Honda has also spent more than all other competitive brands in this segment so far this year with average YTD incentive spending totaling $1,816 through November, which is surprising for a Honda vehicle that has only been out for one model year. Toyota is currently coming in second with average incentive spending totaling $1,773 and Ford third with $1,551. Chevrolet has managed to maintain the tightest incentive control with an average of only $1,191. Expect Honda to pull back on incentives over the course of the coming months as ’13 models begin to dominate inventory on dealer lots.

Honda executives should be credited with moving quickly to address the Civics’ shortcomings and getting ahead of a potentially bad situation before anything bad actually happened and by doing so they should maintain the market share lead they have created. As far as used value retention is concerned, it will be interesting to follow the ’12 model year retention for the Civic compared to the revised ’13 body style. The previous generation Civic was totally redesigned for the ’06 model year and by using historical NADA Used Car Guide value data we’re able to calculate the retention rate for the ’06 Civic Sedan LX equipped with automatic transmission back in December of ’06 as 81.4% of its typically equipped MSRP. Currently the ’12 Civic Sedan LX equipped with automatic transmission has a value retention of 72.4% of typically equipped MSRP, nearly 10 points lower than the previous generation’s retention during the same period.

Of course this retention comparison is just one benchmark and the ten point loss in retained value can’t be solely attributed to the appeal of the new design, but it can be used as an example of how fortunes have changed over the years due to the increased strength of the competition in the segment. That’s the primary reason why Honda moved so quickly to address the car’s perceived shortcomings.

That being said, since the ’12 Civic is truly an orphan body style expect overall value retention for this year to not reflect the typical lift in terms of prices associated with a total redesign. We will continue to monitor the ’12 Civics’ performance in the used marketplace and will provide an update after the ’13 has been on sale for a couple months.