Previously I posted that the Honda City was deliberately made ugly in order for Honda to reap the higher profit margins of the Civic. My theory was that Honda wants people to go for the Civic if they could afford it and not be content with the City. What economists would call price differentiation, and what some might term milking people for all their worth …

Now that the latest Honda City looks quite good, what’s my explanation? I would say that Honda has a four-letter word for it: the Vios. It turned out that, instead of boosting the sales numbers of the Civic, the ugliness of the 2003 City boosted the sales numbers of it’s arch-rival from Toyota. And as all the major car manufacturers in the world know, you can never out-Toyota a Toyota for long, in that you just can’t compete with Toyota in terms of relatively high quality for relatively low cost. Underselling the Vios would mean making a straight loss, but positioning the City as a premium product wouldn’t cut it, either, due to its bad styling. Thus, out of the window with Honda’s ugly entry-level model price differentiation strategy.

And so, with the 2008 City, Honda is back to being Honda: slightly pricey, but with dynamic styling and performance that appeals to a certain segment of the motoring population; and better-looking than a Toyota, of course.

Plus, better to have people buy the City in lieu of the Civic, rather than the Vios in lieu of the City.