Honda backfoot: fixed-pricing, fewer dealers, new business model

Honda says it’s gonna get profitable here in Australia again, by slashing dealers and halving its sales. Yeah, good plan.

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Details on Honda Australia’s future are beginning to emerge, which I enlightened you about a fortnight ago >> .

The big H will basically change the business model here by cloning and implementing the business model it uses in Sheep Shaggistan, the island country formerly known as New Zealand. (The place that keeps getting left off world maps… Yeah, that one.)

Robert Toscano, the managing director of Honda MPE Australia - the kinda separate Honda business that deals with motorcycles and lawnmowers - says the following:

“Dear Business Partner,

Honda Australia (Cars) has announced a new business model commencing mid-2021. Similar to Honda (Cars) New Zealand’s approach for the last 20 years, the business model will be an ‘agency’ approach, supported by a rationalised dealer network.”

He said this in a letter which was leaked to me from a dealer on condition of anonymity.

“This announcement has NO impact on our Motorcycle, Marine or Power Equipment networks.”

Pretty clearly, this letter to the Honda motorcycle and lawnmower dealer fraternity was sent to them to say: ‘fear not, chaps - the other Honda (the car one) is about to gut its dealers, but we have no plans to eviscerate you like that.

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Best lame plans

So, Honda’s gonna remain in Australia - the car business - and it’s still going to import cars directly from Honda overseas, overwhelmingly from Thailand. 

But a significant number of Honda car dealers are gonna get boned over the next 15 months, apparently.

Honda Australia has not yet confirmed how many dealers are slated for high-level boning - but some reports are suggesting here in Sydney for example, where there are currently 12 dealers, that’s shrinking to three.

Honda says that’s bullshit, but won’t say what the numbers actually are… probably because they don’t want you to know how bad it is going to be - yet. There’s also some vague suggestion that the number of actual Honda retail sites might be greater than the number of dealers running them.

Honda calls this a “hub and spoke” model - because everything needs a name, obviously, and that’s the best they could do. Honda says the number of retail sites nationally:

“...is not expected to materially change.”

Nice split infinitive, dickheads - gotta love that corporate ‘unspeak’. Why not just use words that clearly and unequivocally reflect your intentions, thereby engendering trust and respect? Such a novel suggestion for the corporate world (and of course, politics).

But just on the numbers, it’s bullshit. Sales are projected to slump to just under 20,000 annually - more on that shortly - and they currently operate just over 100 dealerships. If that doesn’t materially change, that’s three-and-a-bit cars per week, per dealership, on average. It’s unsustainable.

I think what they really mean here is, after a deeply respectful boning of most dealers, the few remaining dealers will manage more than one site. But many will have to close, and they’re not gonna be car dealers as we know them. Honda Australia is going to own all the cars and all the parts, and the dealer is just a vending machine selling all that stuff at fixed pricing.

Fixed pricing. There’s a mad experiment.

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The ex-factor

In a car dealership today - the dealer owns the stock. He buys it from the importer and he sells it to you at whatever price you agree to pay after negotiating. 

In the Honda Australia dealership of the near future, it’s just going to be a place where you browse and decide what car you want, and then you pay the fixed price, and come back later to collect when it’s ready. Just like a website with click and collect functionality. (Only, one that occupies physical space. Pretty expensive website…)

The dealer - who is really just a sales agent now; he just minds the shop and holds your hand, and of course sweats for his fixed rate commission from Honda on each car or parts transaction. He’s just clipping the ticket on the way through. Three and a bit times a week - good luck covering the fixed costs with that.

This is how they currently operate Honda dealerships over there in the east, where the grass is green and the sheep sleep, cautiously, with one eye open - if they know what’s good for them.

“[We] want to reward our loyal and highly valued customer base with a more relational and less transactional experience.”

Stephen Collins there, the medium-sized cheese of Honda Australia, like a brie or camembert, at room temperature, metaphorically.

Look, dude, I agree with you that everyone hates buying a car - nobody likes being violated, systematically, and that’s what dealers do so well. So, getting a new car is awesome, but buying it, interacting with a car dealer, it sucks. It’s like sucking a golf ball through a friggin’ garden hose.

I’d argue that your statement here is disingenuous. In my view you are not doing this primarily to reward customers by violating them less - you’re doing this because you’re circling the drain financially. Your lack of profitability has become a boardroom issue for Honda Central.

You’ve already admitted that, after the brand’s years of denial and moping around the house, castrated.

How, exactly is the new business model going to insulate buyers from the more hateful entrenched dealership practices, which include bending customers over on the trade-in, again on the finance, again on the umpteen overpriced insurance products, then the paint protection nobody actually needs and the extended warranty, which is completely redundant and unnecessary. 

Before of course parking them in front of the local Ming Moll and her very pleasant display of fake juggs, the better to motivate the procurement of the genuine saxophone holder, the fake carbon fibre rack for Liberace’s AR15 and the diamante-encrusted genuine rooftop ashtray and soda fountain set?

I’d say the opportunities for bending over the unwary punter, are more or less unchanged, but, nice try with the bullshit.

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Less isn’t more

Still, Honda claims this plan was hatched only after:

“...an extensive business review to understand how to make the business stronger and more enjoyable for customers in the long-term.”

So, let’s talk about ‘making the business stronger’. 

Honda sold about 44,000 cars here in Australia last year, placing them just inside the top 10 brands. That was a drop of about 8000 sales - or 15 per cent over 2018. That’s roughly double the average contraction in the market. They’re down another 12 per cent down so far this year, so, they’re pretty much circling the drain.

Now they’re saying they’re going to be selling just under 20,000 cars annually under the new model, which is a helluva strategy to pump up the profit if you ask me. Cut sales by 50+ per cent. Good plan.

In addition to the dealers who will be respectfully boned, the Honda Jazz and City will not survive the bloodbath. No word yet on the the fate of NSX or Odyssey, but they’ll probably keep the Accord for old farts with no taste.

And of course the company will probably retain the only three models they have that still sell reasonably often, but not that impressively - the Civic, CR-V and HR-V - which, against the competition, have been mediocre for a very long time.

The Honda showroom of the future really won’t need to be all that spacious, therefore.

“We can’t sit still. The Australian market has seen 23 consecutive months of decline and every automotive business is rapidly changing. Customer preferences are changing and other industries have evolved while the automotive industry still uses a model that is decades old.”

- Stephen Collins

Stephen Collins there, again. Dude, that’s just such bullshit, I would retort, by way of personal opinion.

Market forces and the dealership business model are not the underlying cause of Honda’s local financial crisis. They’re just not. The problem is your parent company’s staggering failure to innovate since the GFC, 10 years ago, and Honda Australia’s equally staggering lack of anything even remotely resembling passion vis-a-vis the vehicles.

Perhaps if Honda:

• wasted less money on irrelevant fuel cell vehicles;

• stopped shaking hands (arse-kissing) with General Motors;

• stopped tipping time and resources into retarded robots and VR rubbish;

• found a design team not traumatised by anime cartoons as children;

• built the fucking Ridgeback ute in right-hand drive;

• put NSX calibre engine tech into the brand’s more relevant vehicles;

• scrapped the entire HondaJet nonsense

  …then you might stand a chance against the likes of Mazda, Hyundai, Kia, Lexus, BMW and, perhaps, even Toyota, if you’re lucky - it can’t be that hard.

Because right now, Honda, you’re being clubbed to death by these credible brands with actual clout and a 10-year headstart.

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Yesterday’s hero

“NSX: The new sports experience is here”

-Collins, keeps going

Dude - NSX a $445,000 supercar with 244 kilowatts per tonne of insane grunt. NSX is how Tony Stark feels when he kicks on the red unobtainium suit and defeats an evil genius. If I’m looking for a reason to drop 445 big ones, I’m gonna need more than ‘a new sports experience’ mate. I could get that playing friggin’ laser tag.

What you’ve got is an extremely limited portfolio of cars that are no longer objectively competitive, and perceived as emblematically boring because A) they are boring, on balance, and B) you present them to the public as if you’re all just waking up from a week-long benzodiazepine bender.

Honda is still attempting to trade off a reputation for innovation and quality which it has not deserved for at least 15 years, and word is getting around. You could try getting off your arses and attempting to be Honda again.

And this, of course, is why the new business model and the mass boning - despite its deep and sincere respectfulness - just won’t work. If you want to fix the problem, you have to address the core issues.

This so-called ‘plan’ you’ve unveiled, it’s like an alcoholic attempting to get clean by switching from vodka to tequila. You have to fix the product and make it feel exciting - the way things stand, you’re already in the porcelain bowl, and the flush is kinda imminent.

If you’re watching this video and you’re in the market for a new car - you probably remember Honda from the 1990s, when it was a staggeringly innovative engineering powerhouse that built technically amazing cars with such passion. Me too. I wish that was still the case, but it’s a different Honda today - the wrong Honda. My strong recommendation: Buy something else.

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