Honda has said smaller inventories can be a good thing — that perhaps this industrywide crisis will open the door to a better way of operating. Does Honda see a real opportunity to embrace a new distribution model?
I joined American Honda in May of 2020, and between our Honda and Acura brands we had roughly 400,000 vehicles in dealer inventory. Today we’re sitting with about 25,000. We’ve learned how to run the business, but that means bringing new variables into play.
When selling from the pipeline, dealers need to know production dates, arrival times and ETA to give to their customers. These are things that in a 400,000-unit inventory environment we were not worried about because every combination we built was somewhere sitting in a dealer’s inventory. We all now realize having 60- or 75-days’ supply is a completely inefficient way to run our business.
We also have to have a better understanding of what the consumers want. Customers are now ordering from an online brochure or from the guidance [provided by] their sales rep, and we feed that information to production so they are building what the customers want. In an environment where we were filling up this huge pipeline from one month to the next, our viewpoint was a little different.
Honda set an aggressive goal to sell 800,000 EVs a year in North America by 2030 and to have all of its products gasoline-free globally by 2040. How apprehensive are your retailers about the plan to move completely away from internal combustion engines?
When you look at Honda Motor globally across our product lines, including power sports and equipment, we’re the largest manufacturer of internal combustion engines in the world. We build 30 million internal combustion engines a year. When you start talking about moving away from what you might deem our specialty, of course people have questions. I don’t think our dealers are any more apprehensive than many of us are in the industry, quite frankly.
What you’re seeing from government estimates of how quickly we’re going to move to zero-emission vehicles is very aggressive. It’s nice to think that by the end of this decade, 40 percent of what everybody will be selling will be EVs. But you ask questions: Will the infrastructure be there? Will consumer demand be at the 40 percent level? While [demand] is increasing every year, it’s still in the single digits. I think there’s a level of apprehensiveness and questioning.
Over the next couple of years, we’ve got a very solid lineup to sell and the dealers can see the transition. We have a new HR-V, CR-V, Accord and Pilot, and then we’ll bring in the hybrid versions of CR-V, Accord and Civic. On the Acura side, we’ve just launched the MDX and Integra. The dealers know that our first two volume BEVs are going to arrive in 2024. We announced recently our first e:Architecture vehicle in 2026 and our affordable BEV in 2027. I think it’s clear for our dealers to see the pathway as we head to the end of the decade.
What has been the response from your retailers about getting your first mass- volume EVs from GM?
The dealers, like us, see the value of the partnership. They see it allowing us to get products to market in early 2024, which their customers are asking for. So I think the dealers see the value from that perspective. [Toshihiro Mibe], our global CEO, and [Shinji Aoyama], who’s heading up our new electrification business development area, had a global press conference in April and went into detail on how we’re going to make this transition. That allowed the dealers to see where this fits into the total picture, because they could see that the partnership with GM is helping us get to market sooner than we might have ourselves. They’re seeing how sharing resources can be a benefit. And they can also now see that e:Architecture develop starting in 2026.
What can you say about the new vehicles?
The bones of the products are going to be great. And our engineers have had the opportunity to put the Honda touch points on them. And especially the exterior design, we’re going to have uniquely Honda and Acura products that our customers are going to appreciate. I’m very confident we’re going to have a great product.
Honda used to dominate the J.D. Power quality studies. That seemed central to the company’s ascension in the U.S. But in the past two years, Honda has come in below average. Is it a priority to do better on those studies?
Absolutely, it’s a priority. Part of our DNA is what we call DQR: dependability, quality, reliability. That’s what we stand for. We’ve taken these results quite seriously to make fairly substantial changes in our internal process, both in new product development and in the speed with which we react to issues in the marketplace. Some of those changes are reflected in the full-model-change Civic that came to market last year, and in the MDX. We can see from our internal results the significant improvements we’ve made in these areas.
Mr. [Noriya] Kaihara, our president and CEO here at American Honda, has spent his entire career on the quality side of the business. We are absolutely focused on and committed to getting Honda where we should be when it comes to these issues. We have to live up to what our customers expect from us and we will continue to do so. I think we’re making good strides with the products that we’ve recently launched and we’ll continue to make that a focus.
Honda’s light-truck mix has now surpassed 60 percent. What is the threshold for Honda’s growth in that segment? What place do sedans hold in the brand’s future?
We’re operating in a market that crested at 80 percent light trucks last year. We can’t get to the 80 percent level, nor do we want to. You say, well, only 20 percent is passenger cars, but 20 percent of 16 million is still a big number. Civic, in particular, is one of the gateways to our products and to the Honda brand. It will always have that place for us. Accord is another one of our iconic nameplates — 1 in 5 sedans sold in the U.S. are Accords.
As we look forward and transition to the BEV era, which means having the ability to build BEV products instead of ICE products, we will study what makes sense for us. For the foreseeable future, sedans will play a key part in our lineup, and we’ll continue to be contrarians to the overall market that’s racing as fast as it can to an 80 percent light-truck mix.