Honda's new pocket rocket CR-Z

Honda used to sell a wonderful little pocket rocket called the CR-X, a sporty version of the Civic that to this day still has a core following. These owners are active in clubs, sharing parts, performance tuning tips and all sorts of stories and experiences.

The CR-X was really Honda's halo car from the early 1980s to the early 1990s. And then wham! No more. Honda apparently grew up and put its toy car away. Some argue that was a colossal blunder.

But by global car company standards, Honda is a relative pipsqueak – its sales volumes are just more than a third of Toyota's. So with the SUV and minivan boom of the 1990s, the fun-to-drive little CR-X gave way to Honda Odyssey minivans and, later, Pilot SUVs, Ridgeline pickups and bigger Accords and Civics.

Well, Honda says it is back-to-the-future time. The 21st century incarnation of the CR-X is coming this summer as a two-seater hybrid, and we saw the production version of it in January at the Detroit auto show. It's called the CR-Z and it appears to be part of a back-to-basics movement at Honda.

Back to basics not in terms of technology – we are talking about a hybrid, after all – but in terms of Honda's focus on small, fuel-efficient cars. There is, indeed, an updated version of the Odyssey also coming this year, but it's not going to play the same pivotal role in Honda's lineup that it once did. Minivans, as we all know, have become somewhat passé.

But small cars? That's Honda.

“We can make money on small cars because that's our business,” says Jerry Chenkin, executive vice-president of Honda Canada.

The fact is, despite the global recession and the dramatic slump in new car sales everywhere but China, Honda has suffered less than most. The key is a lineup of fuel-efficient cars and flexible factories that can shift quickly to meet changes in consumer demand. Honda was one of the few Japanese auto makers to end 2008 in the black and is one of the fewer still predicting a profit in its current fiscal year, which ends March 31.

“We are profitable and we're going to stay that way,” says Chenkin. “We are not chasing volume at the expense of profits,” he adds, taking a subtle but direct swipe at Toyota, whose quest to become the world's No. 1 auto maker is at the root of its problems today.

The CR-Z is designed to tap into memories of the CR-X, but it is more than that. It joins the Insight and Civic as the third hybrid option in the Honda lineup. So far, Honda has had little luck selling hybrids in great numbers or for healthy profits. But Chenkin thinks the sporty CR-Z will be different.

It's not intended to be a high-volume car, like the Insight. So even though the price is expected to be in the mid-$20,000s or higher, Honda expects to attract a smallish but loyal and dedicated following – buyers willing to pay a modest premium for what is arguably the world's first affordable sporty hybrid in mass production. Honda is shooting for annual sales of 10,000 CR-Zs.

Moreover, Honda officials hint that future hybrid models will be unveiled at upcoming auto shows in Chicago and New York. If Honda has one trait as a company, it is stubbornness, and that means Honda will not give up on its hybrid strategy despite disappointing Insight sales in Canada and the United States.

The gasoline-electric hybrid CR-Z generates 122 horsepower with fuel economy estimated at 6.5 litres/100 km in the city and 6.2 on the highway. It can be driven in one of three modes – “sport,” “normal” and “econ.” Using a 1.5-litre gas engine (basically the same one in the Fit hatchback) and a less-powerful version of the electric motor in the Insight and Civic hybrids, the CR-Z should be able to hit 100 km/h from a stop in less than 10 seconds.

And there's more. In Detroit, Honda Motor chief executive officer Takanobu Ito said he has challenged his research and development staff to develop a hybrid that exceeds the fuel economy of the Toyota Prius hybrid.

“We want to develop and expand our hybrids,” Ito, 56, said during an interview with The Detroit Free Press. “We made some major sacrifices to shift people and resources to do that.”

Honda, it's reported, is now ready to expand its small-vehicle hybrid system to other platforms. However, Honda's large-vehicle hybrid platform is not ready.

All these moves are designed to put Honda back on track with its roots, after years of investing in big vehicles such as the Pilot. Indeed, even Honda's bread-and-butter offerings, the Accord mid-size car and the Civic compact, have grown bigger and bigger, year after year.

The result is that after decades of claiming the best overall fuel economy – fleet-wide fuel economy – Honda is now facing a particularly fierce fuel-efficiency challenge from Hyundai.

South Korea's largest car maker, said in December that it bested Honda in 2009 model year fuel economy, citing U.S. Environmental Protection Agency data. Figures on the U.S. agency's website put Hyundai models at 30.1 mpg in 2009 versus 29.7 mpg for Honda. In Canada, Hyundai is scrambling to somehow use this claim in its marketing, but this is problematic in that Natural Resources Canada does not provide similar EPA fleet-wide comparison data.

But in the United States, officials say they can see that Hyundai has thrown down the gauntlet. The push at Honda now is to reclaim its title as most fuel-efficient auto maker. This matters. Car companies see fuel efficiency, low emissions and advanced powertrains as competitive tools to attract 21st century buyers.

There is also the small matter of stricter fuel-economy rules coming into force. By 2016, car companies in both Canada and the United States will need to be selling fleets that average, overall, 6.7 litres/100 km or 35 mpg.

In all this, of course, Hyundai is certainly not the only auto maker posing a challenge to Honda. Toyota has plenty of fuel-efficient offerings and plans to expand its hybrid lineup, too. Ford and GM are also moving into alternative powertrains – hybrids and electric vehicles – while also pushing ahead with more efficient traditional engines.

Some, such as Eric Noble, president of the Car Lab consulting firm, think it might be too late for Honda to reclaim the “green halo.”

“It's been three generations of Prius and dozens of announcements from competitors,” he said in Detroit.

Ito was undeterred.

“Of course we want the most efficient engines,” Ito told reporters. “Competitors are catching up and I feel pressure from this. I don't want to lose out.”

Yet even while Honda is working on hybrids and various cleaner and more fuel efficient technologies, the Tokyo-based company – the world's largest engine maker – has also been pushing hard to advance hydrogen fuel-cell vehicles.

Only last week, Honda unveiled its next-generation solar hydrogen station prototype in Los Angeles. This station is ultimately intended for home use, to refuel hydrogen fuel cell vehicles over night.

Honda already has leased five of its emission-free FCX Clarity fuel-cell cars in the U.S. in each of the past two years. Canadian Olympic hockey captain Scott Niedermayer is one of the lessees.

As Honda pushes ahead with new products and new technologies, looming in the background is a variable completely out of all auto makers' control: currency valuations. Over the last year, the Japanese yen has grown stronger as the U.S. dollar has weakened. In fact, while the yen is currently trading in the ¥90-to-the-dollar range, it has been as strong as ¥80 to the dollar.

Therefore, it's tough to make money exporting cars from Japan. In Canada, more than 90 per cent of Honda's sales volume is built in North America, so the company is largely insulated from exchange rates. But the subcompact Fit is not only imported from Japan, it is subject to a 6.1-per-cent tariff, making it impossible to price the Fit as low as Honda Canada would like. Fit production is almost assuredly coming to North America.

But in an interview with trade journal Automotive News, Ito warned that certain advanced technologies must at least for now be exported from Japan and that will make them pricier than Honda would really like – at least here in Canada and the United States. The hybrid unit in the Civic, Insight and CR-Z is made in Japan and the hybrid system Honda is developing for large models will also be exported from Japan.

Honda is also struggling to maintain its product development budgets while turning a profit and maintaining its schedule for updating models. Ito concedes that the development team of the next world Civic has shifted its focus to enhance fuel economy even more than originally planned, while also improving performance.

The Civic team is “struggling” to do that, and also to cut costs to make its models “more profitable,” he says.

Honda insiders, in fact, say they are anxious to introduce a new model that is a clear-cut grand slam hit in the marketplace. Honda's lineup is strong enough, but a truly “wow” car would do wonders.

More than a few Honda types are holding their breath, hoping the CR-Z is it.