Acura's bargain birth introduced Japanese luxury to the U.S. 25 years ago

The idea seemed almost ludicrous to Tom Elliott back in 1982, but there it was, in black and white, on Honda Motor Co.'s strategic product plan.

Elliott's bosses in Japan had decided to sell a car priced at more than $20,000 in the United States, taking the Japanese brand dramatically upscale. And Elliott, Honda's U.S. sales boss, had less than four years to prepare.

Even though Honda had been selling vehicles in America since 1959--first motorcycles, then the tiny S600 hatchback--it had been barely a decade since moving into mainstream cars with the subcompact Civic. And its 1982 Accord, which is smaller than the Civic is today, was only in its second generation, with an 86-hp engine. Its starting price was $7,399, or about $16,500 in today's money.

While Honda was manufacturing motorcycles in Ohio, it hadn't yet started production of cars in the United States.

But executives in Japan were dead serious about offering a midsized luxury sedan, including a V6 version by 1986--not to mention a supercar arriving in 1988 that would be filled with Formula One racing technology.

In 1982, Elliott sat down with American Honda President Yoshihide Munekuni and sales boss Cliff Schmillen to draw up a plan that was as audacious as the cars they planned to sell. It was tentatively called Channel Two, and it would be the first new automotive brand on American shores in more than two decades.

"We didn't think the Honda reputation for economical, low-priced, reliable family cars would spread wide enough to cover expensive sporty cars," Elliott recalls.

In an era before PowerPoint, Elliott and assistant Tom Umeno carried a stack of 11-inch-by-17-inch charts on a plane to Japan and presented the idea for a luxury channel to Honda's top R&D executives.

"It was designed to be an intercept brand, to capture owners of Japanese products before they moved up to BMW and Mercedes," Elliott said.

Acura never reached the prestige or sales levels achieved by Lexus, Mercedes-Benz and BMW, which have battled for luxury-brand leadership in recent years. Acura peaked at 209,610 units in 2005, but then went into a four-year slide before rebounding 26 percent last year to 133,606.

Lexus, which arrived in 1990, left Acura in the dust as Toyota poured far more resources into its luxury-brand project. But Acura was the trailblazer.

Elliott said the idea of a new brand was not a difficult sell to Honda's leaders in Japan.

Now all American Honda needed to do was create a brand from nothing, persuade dealers to take on the franchise and plan the marketing launch. Then there was the matter of convincing Americans that Japanese cars--still mocked by Detroit as discarded beer cans--could be luxury vehicles.

Jeff Conrad, who today is Acura's top executive, was a young Honda employee in those days, watching from a distance as Honda gave birth to a brand.

"It was a risky proposition, no doubt," Conrad said.

Honda was a famously lean organization, so the decision to staff a luxury brand meant hiring from within. Ed Taylor was Honda's national distribution manager. Working Honda's typically long hours, he often walked by the conference room late at night, where Elliott sat toiling away on Channel Two.

Taylor had occasionally helped Elliott by "schlepping stuff around" to the nearby graphics company, so he had a vague idea of what was going on. As he left Los Angeles for Tokyo on a two-month training stint in early 1984, Taylor was informed he would be in charge of a new division when he returned.

"Not everybody was all for this project," said Taylor, who was named assistant vice president for the task. "I was told, 'There's the hill. You gotta charge it.'"

Kurt Antonius, Honda's chief spokesman since the early 1980s, recalls his introduction to the new brand.

"Cliff pulls me into his office, and says, 'Hey, we're launching a second channel, with a car with a V6 for $20,000. You have to do the press launch, the PR and media strategy,'" Antonius said. "There were two of us in the whole PR department. I just about died on the spot."

Today, the RL is the flagship sedan of the Acura line. It has a sticker price of $48,060.

It was an era before the Japanese embraced splashy auto show displays. Honda announced the decision in a sober press release in February 1984.

"There was no big announcement at an auto show," Antonius said. "We didn't even have a brand name yet."

One of the first steps was to hire an advertising agency other than Honda's longtime agency, Rubin Postaer. RPA wasn't even allowed to compete for the account. Elliott jokes that Ketchum Advertising won the account in part because it catered Mexican food to the meetings.

"They got us in a soft spot," Elliott said. "But they also got that we wanted people to understand that this was a new brand from a well respected manufacturer."

The name came from NameLab's Ira Bachrach, whom Elliott described as "a nutty linguistics professor, with an office on a houseboat in the San Francisco marina." NameLab proposed a derivative of the Latin word "Accuratus," which means, "careful, accurate, exact."

Acura didn't have a logo until three years after its launch. Initially it was a set of widely stretched mechanical calipers, with a cross-beam that made the logo look more like an "H" than an "A," in tribute to Honda.

But when Munekuni showed the logo to Soichiro Honda, the company founder said the calipers should be closer together.

"Mr. Honda had no problem with the brand having a different name," Elliott said. "Actually, Mr. Honda regretted putting his name on his car. We took the Honda name off all Honda products in the U.S. at about the same time as Acura launched. We talked about not putting the Acura name on the car, but it was a new brand, so we had to have it."

Honda still had to convince dealers that the second channel was a worthwhile enterprise.

"There was a concern that once we came with the new line, Honda dealers would say, 'Hey, that's a Honda, ship them to me,'" Taylor said. "So we had to place our emphasis on separation and identity of the brand."

Elliott took Honda's dealer council to Japan in 1984 to look at the 1986 Honda and Acura model lineups. The idea was to demonstrate the separation of the two product lines. The dealers were so enthusiastic about the Acura cars that when Honda announced that only 50 dealers would initially get to sell the Acura line, there was a frenzy.

"In a place like Dallas, we were going to put in one or two dealers, but a dozen Honda dealers wanted to be one of them," Elliott said.

But even after the dealer body was selected, it was a race to the finish line. The launch date was March 27, 1986, and it was set in stone.

The original lineup consisted of the mid-sized Legend sedan and the Integra 3-door and 5-door compact. The Legend coupe followed in the spring of 1987.

"My overriding memory was that I was told: 'The cars are coming, the dealerships better be open,'" Taylor said. "We designed a book that told the dealers the step-by-step of how to build a dealership, including plans that they could take straight to a city building department to get permits. We made it by the skin of our teeth."

Meanwhile, Acura research showed that buyers of luxury cars were tired of European brands acting as though they were doing customers a favor by selling them a car. Honda created customer service guidelines for dealers to follow, from the sales floor to the service drive.

"It was out of respect for Honda that we took the plunge," said Art Wright, a charter Acura dealer from Lehigh Valley, Pa., who still holds the franchise. "They were going into a good niche, and the margins were going to be good."

Conrad said the dealers were so grateful to be selected that they implemented the programs without blinking. It worked: Acura would win industry researcher J.D. Power's customer service title its first four years in business.

It was the first time Power's customer service award was handed out, and there was no trophy. So to congratulate Acura, Ketchum designed a trophy with a stylized set of calipers. J.D. Power liked it so much that it adopted the trophy. Today, when Lexus, Mercedes or Porsche wins a Power survey, they are handed a trophy that is basically a version of the Acura logo.

Despite Honda's bold plan, few outside the organization showed much confidence in the strategy. On NBC's "Today" show, Jane Pauley interviewed Schmillen alongside openly contemptuous Volvo U.S. boss Bjorn Ahlstrom.

"Bjorn was an example of what not to do," Antonius said. "He was slouching in his chair, wearing white pants and white bucks. He spent four and a half minutes saying over and over that there was no way we could do it, that Honda made nice, small fuel-efficient cars, but no way could we build a V6 luxury car."

The press checks out the Acura Integra at the media launch in Palm Springs, Calif.

Compared with today's lavish brand campaigns, Honda's launch of Acura was cheap, with just two weeks of teaser commercials before Acura went live.

"Frankly we didn't have time to stop and think about it," Taylor said. "We were working jillion-hour days, six days a week, with a very modest budget."

And even though Honda had been selling cars for a couple decades, Acura would represent the automaker's first ride-and-drive press event.

"I had to test the airbags in the Legend coupe for the media--twice," Antonius said of the spartan affair in Palm Springs, Calif. "I had bruises for weeks. But the press reaction was very important. It was the first outside reaction that we were on to something."

Not that everything went smoothly at launch. Honda executives were unsure how luxurious Americans wanted their first upscale Japanese car to be. The first Legend's mix had a large percentage of cloth seats and manual transmissions.

"There was a lot of concern about price," Elliott said. "It was going to be a lot more expensive than any other Japanese car, and we wondered that would be acceptable. We quickly found out that people didn't want a stripped, price-leader model."

The 1986 Legend started at $19,543, including shipping, but that was with a manual transmission and cloth seats. That was more than twice the price of Honda's Accord. Still, from the opening weekend, Acura showrooms were crowded.

"People were ready for it," Wright said. "They wanted to move up a little bit, but didn't want the pricing jump of the Germans, Cadillac and Lincoln." At the time, BMW's 5-series offerings were straddling $30,000, depending on the model, and Mercedes' mid-range E-class models were pushing $40,000.

Said Wright: "The customers took the leap of faith, too. People were enamored of the idea of being involved in something that was new. We just took off. Every month the reality got greater."

Wright says rival dealers were "torn" in their feelings.

"Half of them knew we were never going to make it, and that we'd lose a lot of money in the deal," Wright said. "The other half were hoping we wouldn't make it."

The Acura NSX was unveiled at the 1989 Chicago auto show.

The budget might have been lean, but Honda didn't scrimp on the engineering. The V6 in the Legend won rave reviews for its smoothness and power. But that was just the beginning.

Despite Honda's "We make it simple" ethos, a third car arrived in the lineup that would change how the world perceived Japanese cars much more than the Legend.

When the NSX supercar debuted at the 1989 Chicago Auto Show, the reaction was unanimous: "For a Japanese car, it was way ahead of its time," Elliott said.

Toyota had the Supra, Nissan had the 280ZX, and Mazda had the RX-7. But the NSX came from another galaxy.

"It was Honda's way of taking Formula 1 experience and showing what technology could be achieved in a road car you could drive every day. It was the first car I drove 170 miles an hour," Elliott said.

The NSX's lightweight all-aluminum body construction was revolutionary. Overseeing its creation was Takanobu Ito, the NSX "body man," who would go on to become Honda Motor's present-day president.

Just as impressive were the NSX's titanium connecting rods slotted into a 3.0-liter engine, which was the first naturally aspirated engine to develop 100 hp per liter of displacement. "It was the best thing to happen to Ferrari," Antonius said. "The NSX had an easy clutch, and was dependable. It was a huge wake-up call. The price was $61,000 but it was selling for $80,000."

Once Acura was launched with a complete field organization, it still kept its lean structure. Acura had been on the market for three years in 1989, while Toyota was still in the launch phase for its rival Lexus brand. Yet Lexus already had more employees.

"We didn't have a blank check to do it," Taylor said.

Maybe it was Lexus' depth of resources. Maybe it was Toyota's decision to go to the top of the luxury ladder, unlike Acura's more modest aspirations. But Acura quickly found itself passed by its Japanese rival.

As Acura lost its customer-service crown to Lexus' no-expense-spared effort, its product vision wandered with the Vigor sedan that debuted in the early 1990s. Then the Japanese bubble burst, a global recession hit, the dollar swooned against the yen. Honda Motor, it seemed, was paying less attention to its America-only luxury brand.

As Acura struggled in the 1990s, it made the controversial decision to dump its product nameplates for alphanumerics--a decision still questioned by Acura fanatics and business scholars.

"The public recognition of model names was higher than that of Acura itself, and we didn't want that. We wanted Acura's perception to be higher," Elliott said. Besides, all the Europeans did it, as did Lexus and Infiniti.

"I don't think alphanumerics have hurt us. I'm not sure how much it's helped, but it hasn't hurt," Elliott said. "It seems to befuddle the press sometimes. But it reinforces Acura."

As luxury brands moved further upward, Acura eventually decided to emulate its competitors by developing a V8 engine and rear-wheel-drive platform. But on the eve of project sign-off in 2008, the Lehman Brothers collapse trigged the implosion of the global financial markets. Ito, the Honda president, killed the programs, as well as a rebirth of his own NSX.

In a new era of luxury thinking, and with a premium on fuel efficiency, Acura may be well placed with its "smart luxury" positioning, smaller engines and front-wheel drive.

"The world changed a few years ago," Conrad said. "Are we remorseful we don't have something else, something more? No. We're producing for what the customer wants today."

By Mark Rechtin- Automotive News