An expansion of the already popular Fit family, Honda said the muscular yet compact car will offer a great alternative to customers who want the versatility of a sport utility vehicle with the size and handling of a small car.
"With aspirational and sophisticated styling, this urban SUV concept showcases the dynamic sculpting and vibrant character lines of a sporty coupe in the confident, capable stance of an SUV," American Honda sales chief John Mendel told a press conference at the Detroit auto show.
"Younger buyers in particular are looking for the functionality of an SUV in an efficient, fun-to-drive package. And we think this vehicle is right on the money."
The new model will hit the US and Japanese markets in 2014 following the launch of the updated Fit before being rolled out worldwide.
Small cars like the Fit, City and urban SUV will the be "key to our future," Honda chief executive Takanobu Ito said as he unveiled the concept car.
Honda forecasts that sales of this "global compact series" will expand from about 500,000 today to 1.5 million for the fiscal year ending in March 2017, Mendel told AFP.
That will help Honda drastically increase sales from four million to six million vehicles during the same period.
The remaining growth will come primarily from its core global models: the Accord, Civic and CRV.
"We see small continuing to grow," Mendel said in an interview after the launch.
"We think that with continued pressure on fuel economy demands we'll see a continuation of that kind of Europeanization of the US market: smaller, more rational but I want all the emotional content, I want the capability."
There is a great deal of pent-up demand in the United States for Honda's Fit that will not be met until a new factory in Mexico comes online in 2014 with the capacity to build 200,000 vehicles a year, Mendel said.
Honda expects to be able to boost US sales from 1.4 million vehicles in 2012 to about 1.8 million by 2017, which will help North American sales reach close to two million.
Building small cars profitably is "tough," especially for vehicles sold in emerging markets that need to come in a lower price point, Ito said on the sidelines of the show.
"I think for all automobile markers to survive in the future it's going to be necessary to make these kinds of small cars, to make them highly efficient and to have the technology to build them," he added.
"We think product development and tech development in this area is something we're very good at."
Toyota is also building a new factory in Japan that will focus on compact cars and is working to slash overhead, increase efficiency and optimize production by concentrating research and development, sourcing and production in one location.
Similar plans are going into the upcoming Mexican plant and localization also helps to lower costs while offsetting currency fluctuations and the impact of the strong yen.
"The exchange rate obviously is not something one can control and it's not something that's very easy to predict," Ito said.
"Therefore, globally for Honda in order for us to grow we need to work to minimize these exchange rate risks."
Honda -- which was the first Japanese automaker to launch US auto production in 1982 -- currently builds 90 percent of the vehicles it sells in the United States in North America.
That will move up to about 95 percent once the Mexican factory comes on line, Ito said in an interview on the sidelines of the show.
Honda already has several smaller expansions underway at some of its 14 existing North American plants to bring total capacity up to 1.92 million units from the current level of 1.63 million by 2014.
"We will have more flexibility as well as capacity for exportation," said Tetsuo Iwamura, head of Honda's North American operations.
The Japanese automaker recently hit the milestone of one million vehicles exported from the United States and is looking to become a net exporter of vehicles from North America within the next two years.