Afterward, a dealer wonders: What brought me down?
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Marshall, a veteran car dealer in Reading, Pa., surely was too smart to fail. Yet after 25 years in the business, first as a General Motors field manager, then as a Chevrolet-Volvo-Honda dealer, he closed his doors in 1982.
Marshall wasn't on the inside at Honda. He was duped, and it destroyed him. But few people knew that truth, and Marshall wasn't among them.
In the 1970s, corruption took hold of the distribution system at American Honda Motor Co. Inc. Some senior executives expected to be compensated personally - and under the table - for awarding new franchises.
Low-level zone managers intimidated dealers into coughing up cash and merchandise in exchange for preferred car allocations. By the 1990s, corporate managers pushed through bogus "advertising campaigns" that merely funneled dollars into their pockets.
Playing the game
Like most other Honda dealers across the country, Marshall didn't know a game was being played.
But some dealers realized that a factory system of graft and favoritism could either destroy them or make them rich. So they went along, slipping a few hundred or a few thousand bucks to this manager or that one to win preferential treatment.
There were FedEx envelopes stuffed with money, Christmas cards with $10,000 tucked inside, house payments made by dealers, a briefcase of cash exchanged in a hotel bar, improper real estate deals with secret interests, shopping sprees in Hong Kong paid for by retailers, Rolex watches on the wrists of young zone employees.
Some dealers went along out of fear. Others assumed that this was Honda's normal way of doing business. Maybe they knew that squeezing dealers for cash and writing factory executives into ownership deals didn't reflect the American way.
But this was Honda, they reassured themselves. It's probably just how they do things in Japan.
A dealer in West Virginia never caught on to the kickback game. During the planning talks for a new Honda store, the dealer kept hearing the same odd statement from his zone representative.
"You're just not putting up enough cash," the factory rep said. "There's not enough cash in this deal to make me comfortable."
The dealer later reviewed the discussion with his lawyer. "He almost sounded like he was asking for a bribe," the dealer mused. The lawyer assured him: No one would be so brazen.
But after weeks of slow-walking the negotiations, the rep abandoned the project and stopped returning the dealer's calls. His disappearance left the dealer holding the debt on a piece of land that would never house a Honda store.
In the eyes of factory reps who knew how to keep the payola flowing, nonplayers were a waste of time. Marshall, now 81, told Automotive News: "No one ever approached me about a bribe."
Hank Marshall was an old-fashioned businessman.
Straight arrow
A World War II veteran whose aircraft carrier had been blown out from under him in the South Pacific, he was a 6-foot-2 college graduate who did things by the book and kept a clean house.
In 1954, Marshall went to work at GM as an entry-level factory representative with a degree in marketing. By 1960, he had been promoted to zone business manager. In 1967, he grabbed an opportunity to buy a Chevrolet dealership in Reading.
Not long afterward, GM opened a second Chevrolet store in Marshall's area, effectively cutting his earnings potential in half. Yet his dealership continued to flourish. He inherited a Teamsters local in his parts department. Within a few years, he saw the union decertified from his store.
Marshall's ambition was to build a business that his son would take over one day. He added a Volvo franchise in 1970. Four years later, he signed on with Honda.
The Honda brand was insignificant in the United States. It had just one model - the Civic - and it sold all of 41,638 vehicles in America in 1974. But Marshall reasoned that dualing with Honda would help keep him profitable if Chevrolet sales declined.
Success, then disaster
Things went well at first. Honda sales were rising in America, reaching 375,388 units in 1980. But by the early 1980s, a combination of rising consumer interest rates and Chervolet's falling market share set Marshall up for failure. The corrupt Honda sales network delivered the knockout.
"We could never get the cars," Marshall recalls. "I couldn't figure it out. We were doing everything right, but we wouldn't get the cars to keep us going."
Scorching economic recession was closing auto plants across North America. At the same time, Chevrolet continued to push inventory onto its retailers, including Marshall. His losses on the GM side of the ledger approached $25,000 a month.
Marshall calculated that his Honda allocations could enable him to offset that debt, easily. But he didn't know it would take bribes to get the Honda inventory he wanted.
In June 1981, his bank called his loans. Unable to pay them off with Honda profits, he closed the Chevrolet store in August. He auctioned off his business that Christmas.
He turned in his Honda and Volvo franchises. His son left to seek a new profession. Another dealer replaced him in his store. And for the next 12 years, Marshall would wonder how he had failed.
What went wrong?
As Honda built and expanded its retail business in the United States in the 1970s, the company enjoyed a pristine public image. Vehicle sales went up and up. Consumers waited in line to buy Honda cars. Honda dealers begged for more.
Taking advantage of a corporate culture of lean management and self-directed initiatives, a group of freewheeling U.S. managers lined their pockets. Those who prospered kept their secrets from their goal-oriented Japanese bosses.
By the 1980s, some dealers were growing suspicious. While they struggled, they noticed that other Honda dealers had sumptuous inventories.
It must be a racket, several dealers concluded. A few even suspected that organized crime had infiltrated Honda. Anyone who spoke up, they feared, might even find his life in danger.
Dealers sought help from an objective third party - industry marketing executive J.D. Power II. In 1983, they asked Power to approach the executive vice president of Honda's American arm, Yoshihide Munekuni, to convey the dealers' doubts and suspicions without naming them.
Munekuni told a company lawyer to examine whatever hard evidence of illegal activity Power could provide. Power took that request back to the dealers. But fearful of being identified, none of them would step forward. The matter was dropped.
In the end, civil courts blew the lid off Honda's corruption. One dealer who was suing another in New Hampshire made a casual reference in a deposition to a payoff. The judge turned the matter over to the local U.S. attorney. Suddenly, a decade's worth of sordid tales began to emerge.
Helped by American Honda's lawyers, the U.S. Justice Department spent much of the 1990s sorting out criminal charges. Ultimately, more than two dozen former company managers and Honda dealers were sentenced to prison terms.
All but two pleaded guilty. A federal jury convicted Jack Billmyer, a senior sales executive who had been instrumental in creating Honda's luxury Acura brand.
Prosecutors said the rogue managers had pocketed at least $10 million in cash and merchandise. Attorneys who took part in the investigation called that estimate conservative.
Civil litigation followed the criminal prosecutions. Dealer after dealer sued American Honda, its Japanese parent and the former executives who had participated in the schemes. They also sued fellow Honda dealers who the criminal case showed had benefited from the corporate corruption.
Honda settled the litigation for $330 million in cash and services. The company later agreed to increase the settlement by $60 million.
Aha!
From his home outside Baltimore, Marshall, who had retired, followed press reports of the criminal proceedings. Like many other dealers around the country, he was incredulous.
How could this have gone on? How could Honda's senior management in Japan have failed to notice? And how did all this affect dealers' business?
Marshall realized that he and other former Honda dealers had failed because corrupt factory managers had thwarted their business plans. Then in his 70s, an angry Marshall contacted his lawyer. The story left the attorney shaking his head.
Like other Honda dealers in small towns around the country, Marshall at first was discouraged from suing. Some attorneys found the case impenetrable. But after many large lawsuits were filed in major cities, a federal judge in Baltimore consolidated them into a nationwide class-action suit. The class consisted of current and former Honda and Acura dealers, going back to the 1970s.
Marshall's case was not the most egregious of the 1,800 dealers represented in the action. He was far from the most vociferous of the wronged dealers. Rather than sue on his own, he remained a low-profile member of the class.
But when lawyers reached a tentative settlement, Marshall pondered Honda's offer: $40,000 per dealer. While most dealers went along, Marshall broke ranks and filed for a separate settlement. He says a court agreement prevents him from discussing its outcome.
"I'm still pretty damned bitter about the whole thing," Marshall says. "The biggest tragedy in the whole thing is that I lost my job. My store's gone.
"I loved the auto industry. I still do. I'd go back to it tomorrow if I could."
You may e-mail Lindsay Chappell at lchappell@crain.com
You can reach Lindsay Chappell at lchappell@crain.com.
