Market share is everything. It's less important to grow volume than it is to grow market share. And not just fleet sales, as GM and Toyota target, but actual living, breathing customers. Customers who will either come back or not based on what you sell, not fleet customers who will gladly switch to Chinese if the price is right.
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Honda needs to grow. They need to grow in order to keep market share, at the very least. If you lose market share to the competition, you shrink, you lose money for development, and you're stuck building boring, also-ran cars.
The only other way to maintain the technology edge is to go upmarket, and raise your margins high enough so that you can fund development with fewer cars.
Now, if you're GM... then shrinking is good. Focusing on core businesses with good margins rather than trying to keep several zombies afloat (Opel... cough... Isuzu... cough...).
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Honda's problems are many.
First, it's got a big network that it needs to service by sending out many, many units.
Second, it's falling behind the technology curve, as everyone starts building better and better engines and gearboxes. About the only ace Honda has left is build quality.
Third, Hondas are expensive. They have to work very hard to keep pricing down, and that means decontenting. A Honda at the same price as the competition is a pretty sorry thing. And the cheaply made ones... I just drove two Thai-built Civics. The joins on top of the dashboard were a mess, and the rubber on the door handles was peeling off. And these cars had less than a thousand miles on the odometer.