TOKYO (Nikkei)--In June, the Odyssey, the minivan from Honda Motor Co., topped the Vitz, Toyota Motor Corp.'s global strategic model, to become the new leader in model-specific domestic car sales other than minicars.

Until now, Toyota models have enjoyed overwhelming strength, with the Corolla in the top position for 31 calendar years running up to 1999, and the Vitz for the first five months of 2000. While Honda is competing on the basis of sales volume with the Odyssey as its heavy hitter, Toyota is rising to the challenge with all-around strength and higher profits in mind. Competition will intensify as the new-car market recovers.

Excitement at Honda rose in mid-June, on anticipation that the Odyssey could reach the top of the rankings. Registrations of the vehicle numbered 5,100 against the Vitz's 4,200 as of June 15.

May had been a bad month for Honda because its May 12 projection for fiscal year performance was below market projections, causing its stock to plummet. In a CART race on its own track, Honda President Hiroyuki Yoshino went pale as he watched the Toyota team come close to snatching victory from his company.

On May 26, Honda announced a domestic sales goal of 900,000 cars for fiscal 2003, 200,000 more than this year. The markets saw this as "unrealistic," as one analyst put it and, to the chagrin of company executives, Honda stock fell further.

But the new Odyssey has saved the day for Honda just as the first-generation model did by initiating the fad for minivans in Japan. In March, the company sold 15,392 Odysseys, a new record and over 150% ahead of its 6,000-unit goal for the month, beating the Estima, Toyota's contender in the category.

The Odyssey maintained its momentum, managing to finish first on June 30, with around 14,600 units sold, while the Vitz barely kept up, selling about 14,200 for the month.

Because Honda couldn't keep up with Odyssey orders despite running at full-capacity (38,000 units/month) at its Sayama plant in Saitama Prefecture, it asked employees to give up two June holidays. Executives are very pleased to have a long-awaited hit product.

Observers were initially dubious about the continued popularity of the all-new Odyssey, which hit the market in December 1999. "It's almost the same as the first-generation model of 1994," says one industry observer, voicing a widely held opinion. Honda retained the model's appearance but put priority on intangible improvements, like driving performance and priced it between 2,125,000 yen and 3,345,000 yen to compete with other domestic minivans, like the Estima and the MPV from Mazda Motor Corp. (7261).

The "Odyssey effect" is gradually spreading in the showrooms. "If I'm going to own only one car, I'll pick a minivan because I can carry my whole family, including my parents, two daughters and wife," says one 41-year-old man in Kawasaki, while visiting the local Honda Clio Kyoritsu showroom. "The Odyssey isn't cheap, but a foreign model would cost 4 million yen."

Over the weekend the dealer greeted 60 to 70 customers, mostly family men in their 30s and 40s.

The dealer registered 856 new Honda cars in the Jan-June period, up 10.6% from the corresponding 1999 period, the first two-digit growth in three years. "The Odyssey is having a terrific effect," says President Mamoru Ishizaki.

The Honda Verno Tokai dealership, located in Aichi Prefecture, a Toyota stronghold, registered 3.5 times more Odysseys in June than it did a year ago. "Our year-on-year increase in registrations of all Honda cars in Jan-June is over 20%," said Managing Director Masahide Ito.

While Honda has waged an aggressive sales campaign to move Odysseys off salesroom floors, Toyota has been surprisingly cool. At its June 30 meeting of Chubu-region dealers, President Fujio Cho offered no pep talk despite his report that the Vitz had fallen from first position in the market.

Since launching the Vitz in January 1999, Toyota has encouraged dealers to build sales and profits. It has since implemented a fixed-price sales policy which aims to attract customers with product quality rather than big discounts, while cutting dealer incentives to avoid money-losing sales.

Since the release of the Vitz model, Toyota has introduced the bB and the FunCargo in its effort to improve profitability at dealerships while maintaining high market share.

"We don't chase customers who are looking for discount prices. We don't want discount wars," says a source at Toyota Corolla Aiho, Toyota Motor's Aichi Prefecture dealership, reflecting the opinion of most Toyota dealers.

The high sales goal of 900,000 units has put the screws to Honda dealers who cannot meet their quotas. At a recent used-car auction held by industry leader USS, there were bids on used Odysseys with less than 100km on the odometer. Apparently dealers are channeling some Odysseys, registered as sold but not actually bought by customers, to the used-car market.

In the face of such competition, Toyota dealers remain optimistic. "A 10% discount like the one on Odysseys would only hurt our sales and profit," says a source at one Tokyo dealer.

The Japan Automobile Dealers Association announced on July 3 that 375,679 new cars (other than minicars) were sold in June, up 8.5% from the June 1999 figure. This year-on-year growth is the best since the consumption-tax hike in April 1997. "June is not the end, and the season will continue," says a Toyota executive. The real competition for new-car sales has just begun.