Starting small, American Honda learns from mistakes

When most of its first products prove wrong for this market, it recalls them and sells what's left, a small scooter; sales take off

In September 1959, the one-story motorcycle showroom on Pico Boulevard in west Los Angeles didn't look like the headquarters of what would become a major U.S. automaker. The apartment that Kihachiro Kawashima, American Honda Motor Co.'s general manager, shared with two subordinates wasn't anything to brag about either.

"We were so strapped for cash that the three of us shared a furnished apartment that rented for $80 a month," Kawashima later told author Richard Pascale. "Two of us slept on the floor."

Pascale's 1984 book, Perspectives on Strategy: The Real Story Behind Honda's Success, cited Kawashima's ability to learn and change course as the key factor in the success of American Honda. His experience marketing motorcycles in America represented an early, crucial turning point for the company, Pascale concluded.

Honda was pinched because Toyota had flopped in the United States the year before. After the underpowered, underengineered Toyota Toyopet car proved inadequate for American roads, Japan's Ministry of International Trade and Industry refused to let Honda take more than $110,000 cash and $140,000 worth of motorcycles and parts out of the country.

If mighty Toyota had failed in America, the ministry urged, Honda should stick to Japan.

Putting down roots

Kawashima and seven employees opened its U.S. headquarters in a converted photography store. He could have rented but chose instead to spend most of his precious cash reserves to buy the shop, reasoning that "we should put down roots." With crates of motorcycles en route from Japan, American Honda started recruiting dealers.

American Honda's defining moment came early. By March 1960 it had 40 dealers and 1,700 sales, mostly 125cc, 250cc and 305cc displacement motorcycles. But during the next few weeks, reports of blown clutches and failed engines poured in.

"This was our lowest moment," Kawashima recalled. "Honda's fragile reputation was being destroyed before it could be established. As it turned out, motorcycles in the United States are driven much farther and faster than in Japan."

Rather than make repairs in California, Kawashima recalled all the offending models, compensated owners and halted shipments.

The only products left were the 50cc scooters that Kawashima had considered too puny for rich Americans. He had thought them likely to undercut Honda's credibility with the black-leather-jacket motorcycle crowd the brand sought for its larger bikes.

"We had no choice," Kawashima said. "We let the 50cc bikes move. And surprisingly, the retailers who wanted to sell them were not motorcycle dealers; they were sporting goods stores."

The tiny scooter, called the Supercub in Japan and the Honda 50 in the United States, took off. The little Hondas, which sold for $250, didn't resonate with traditional motorcycle buyers but did appeal to college students and young buyers clamoring for cheap wheels.

Kawashima was unimpressed with many of the late-1950s motorcycle sellers he had met on a cross-country trip before American Honda opened. They were hobbyists who financed their love of motorcycles by selling a few on the side. They knew their customers, he concluded, but their shops were dim and dingy and kept odd hours.

Kawashima recalled a Japanese strategy of Honda's. As a newcomer in Japan in the early 1950s, the company could not escape junior-brand status with established motorcycle dealers. So Honda recruited bicycle dealers and used the new channel to emerge as Japan's top motorcycle brand in the late 1950s.

Clean, bright

Similarly, Kawashima pushed to recruit professional U.S. retailers with cleaner, brighter shops and regular hours. American Honda emerged from its product crisis with a different image. It attracted dealers such as Rick Case, who converted a 4,000-square-foot grocery store to open a Honda motorcycle shop in Ohio in 1962.

"In 1960, '61 and '62, it was all Honda 50 and the 'Nifty, Thrifty, Honda Fifty' ads," Case said. "The bigger bikes came along later."

For Case, the lure was not merely a motorcycle franchise, even though he operated 14 Honda motorcycle franchises in Ohio in the 1960s. The attraction to him was cars.

"I had a used-car dealership, and I wanted to sell new cars," Case said. "I heard that Honda would bring cars to the U.S. I wanted in."

Author Pascale attributed American Honda's early success to "miscalculation, serendipity and organizational learning." 

You can reach Jesse Snyder at jsnyder@crain.com.