New Honda Jazz in doubt, City to go

The value of the Australian dollar is placing critical pressure on the business case for the two light-segment passenger cars in Honda's local range, the Honda Jazz and the Honda City.

And the escalating need to well equip even the most basic variants in the two light cars is also putting the squeeze on profit margins. With the diminishing interest in light sedans, furthermore, the Honda City will not continue beyond the current model, despite a new generation waiting in the wings.

"That segment [the light passenger car segment] is very challenging," Honda Australia director Stephen Collins told journalists during the local launch of the new Honda Accord yesterday.

"The segment, with City, is absolutely dying. I think three years ago the light sedan segment was making 9000 units a year; we had 15 per cent of that. This year it did less than 3000, so in fact, this will be the last generation of City. We'll stop City towards the middle of 2020, and we're still working through Jazz."

The City will continue to sell in other markets, where buyers prefer a sedan over a hatch, but the trend in Australia has favoured five-door models in recent years. Even the new Honda Jazz isn't certain for Australia, however.

"We're working through a number of issues with Jazz," Collins continued.

"It's a full business model issue; it's the cost of the car, where the segment's at, where we position the car. They're all of the factors. It's not new, we do that with a lot of models, but that's all the factors that we're juggling at the moment..."

The situation is specific to the Australian market, Collins revealed. There is no external pressure to finish off the Jazz in Australia; it's all about landed cost, marketing and logistics.

"It's not a supply issue, it's not a sourcing issue; we need to make the business case stack up," he said.

"It's not a small decision, and we are very conscious of that. They're very loyal buyers; it's the entry to our range. For all those reasons it's important."

"The Aussie dollar is really causing a lot of pain at the moment – not just for us, but I think for all of the importers.

Collins is not at all optimistic that the exchange rate will improve for local importers in the near future. Essentially, the era of bargain-basement hatchbacks at sub-$15,000 levels is nearing its end.

"It depends on where your long-term assumption on where the Aussie dollar sits. If it's sitting where it is today [in future], those days are gone," Collins admitted.

"The trend is clearly a lot of manufacturers moving away from base grades. For us, when you're buying [at] 21 baht to the Aussie dollar, whereas six years ago it was 30 – that's a 35 per cent deterioration – those days are gone. Unless it bounces back, and we don't think it will bounce back.

"The other trend of course is putting Honda Sensing [driver-assist active safety features] and this type of technology in a $16,000 light car doesn't come cheap, so I guess these are the economics that we deal with, and everyone else deals with. It puts more pressure on those base grades [in] small and light cars."

It places in some context Mazda's recent decision to lift prices and rationalise its model ranges for the entry-level Mazda2 and Mazda3.