For Honda dealers, 'things are good and getting better'
Dealer since: 2004
Dealership: Walnut Creek Honda, Walnut Creek, Calif.
Other brands: Acura
Average monthly sales at Honda dealership in 2012: 119 new, 45 used
Quote: "Honda reluctantly uses stair-step [incentives], and it does work. They only do it when they have to. Dealers don't like stair-step because they don't like their volume objective. You only have so many tools in the bag. … The dealers who don't like it are very vocal. But the dealers who do well, you don't hear from them."
Honda has rebounded from the inventory shortages resulting from the 2011 Japan earthquake and tsunami, and it is ready to recapture sales and share.
Honda's four key volume products -- the Civic, Accord, CR-V and Odyssey -- have been redesigned in the past two years, and a plant in Mexico will start churning out subcompact sedans and crossovers next year.
All that has led Honda Motor Co. to target a goal of 2 million North American sales -- including the Acura premium brand -- within the next few years. Clearly, this is an automaker with growth on its mind.
Gordon Walton, chairman of the Honda Dealer Advisory Board, spoke with Staff Reporter Mark Rechtin about what this year holds in store.
How was 2012 for Honda dealers?
Great. It was a better year than 2011, and we are optimistic about 2013. We've had continuous improvements.
Obviously, the tsunami year was tough unitwise, but most guys made a pretty good profit on the supply and demand curve. But unit volumes are coming up, and dealer profits are good. Almost everyone I'm talking to is optimistic and believing things are good and getting better.
What major issues do Honda dealers face this year?
Because of our volume, we have a lot of Internet pricing issues. That's the No. 1 problem, the way the business is being conducted on the Internet right now. There are a lot of different ways of quoting price by a lot of different people. Some include everything; some don't. The biggest challenge is how to do business in that environment and maintain any integrity at all. This is not unique to Honda dealers. It's everybody.
Consumer rebates really start to muddy the water. You see a lot of brands offering $7,000 off, but that includes first-time buyer, military discount, the things the average buyer can't expect.
Honda hasn't had these factory-consumer rebates, so we've been able to have a bit higher integrity in our marketing. There are Web sites out there, advising customers what a car should cost, that aren't disclosing everything. It's confusing the customer, and it's difficult for dealers to maintain any integrity on this, and it's going to backfire on our industry.
What do you hope to accomplish as dealer council chairman?
The chairman of the board has some responsibilities, but it's very much a board, not a single guy. It's not at all a situation, like at other manufacturers, where the chairman dictates how things are going to be. There are 12 dealers, and it's very much a collective thing. It's a three-year commitment to be on the board -- going from vice chair to chair to chairman emeritus -- so it's not where you have a kingdom for a year.
My goal is to maintain the really high level of engagement between the board and the motor company. We really do have an excellent working relationship with Honda, and they take it very seriously, and dealers really appreciate that. My job is not to do anything to damage that.
Honda listens. We ask for things, and they happen. That's kind of unique.
Over the years there have been a lot of issues. We've asked for different marketing programs, some service-related issues, and they've been very responsive. They are committed to the process.
Are Honda dealers making money on new-car sales?
New-car profit is the choice of a dealer. Depending on how you set up the store, the new-car department is profitable or not. A lot of dealers charge all the detailing costs to new car.
Obviously there has been a compression of gross profit industrywide. Average grosses are not as good as 10 years ago. But the cost per sale of a new car hasn't gone down any, so it's more of a struggle to make a profit. Most dealer profit now comes from the service department.
Does Honda's certified pre-owned program work for dealers?
Absolutely. Honda's really works well. It's recognizable. Dealers would probably like more CPO marketing, but all dealers want more marketing. The process has a lot of integrity. Consumers recognize it. Nobody is complaining about the process.
The only CPO complaint is that we can't get enough of them. Hondas hold their value so well that when you buy a 3-year-old Accord you are competing with a new car to make any money on price. That's a good and bad problem to have.
In 2008, we had the collapse. That put fewer units into the market, so fewer units are returning. Honda doesn't do rental cars, so there isn't a supply like with other brands of rentals coming back, and that's a good thing. We're shorter on cars, but it maintains the value and integrity of the brand. It's something dealers appreciate. They wouldn't make that trade.
What are dealers doing to attract more service business? Is Honda helping?
The factory is doing a lot more marketing than they've ever done. Every dealer has their own philosophy on how to do it. But nationally and in zones Honda has been more engaged in service marketing. No dealer is complaining about not being able to attract service work. The bigger challenge for most dealers is staffing with qualified technicians to do the work.
What are Honda dealers doing to attract more F&I business?
I understand why American Honda Finance does so well. Any captive does well because that's how incentivized financing goes through. But Honda has an absolute attitude that dealers are their customers and that they have to compete in service and relationship-building like any other bank.
Most captives and banks are not that way, at least in my experience. They are not as concerned in earning your business as Honda. There's a pervasive idea that because you have to go through the captive to get incentives, they don't have to work hard to get your business.
That's not Honda. They appreciate our business, they want to earn our business. While they enjoy the fact that they are a captive, they don't act like a captive.
What should the factory do to help you sell more vehicles?
We could get more Accords. The Accord Sport is a great product. It drives great, has a great price point, and we can't get enough of them. But that's the double-edged sword of wanting one-too-few cars. Giving dealers what they want in the short-term is not always in our best interest. But Honda is working hard to do it. Right now, every dealer would say we need more Accord Sports.
Honda Motor set a recent goal of reaching 2 million North American sales. Is that asking too much, too soon?
It's a big goal. It depends on what the future of small-car development is. That's what's going to be key: how well we bring new products to market that create volume demand. We already have the best-selling small car with Civic. So how do you bring additional vehicles to market so you are able to create large volume sales? The new plant for the Fit will be a shot in the arm. It's not going to be one [vehicle].
It's not like we're doubling Accord sales. There are a lot of little things that will get us there. If you go back to 2007, projecting where the industry was supposed to be going, if you take the tsunami and Lehman out, how much of a stretch would 2 million be? It seems like a stretch today, but the total number of driving households in 2015 and 2016 will be the same as if the market had not experienced these dips. In 2007, it wouldn't seem like a big deal.
What is your feeling about Gen Y and cars?
It's not that Gen Y isn't interested in cars. It just has a different interest in cars. You look at young people's acceptance of a car like the Fit.
When I was that age, I wouldn't have considered that car at all. We didn't engage with those cars. But Gen Y is looking for a different experience. They still need to have a car. With our society and how our country is laid out, you have to have a car.
Looking at the average age of cars on the road, they are continuing to age, so by 2016 or 2018 those numbers are going to go up, and there's a diminishing return to having those cars on the road, servicewise. We're seeing a return of inexpensive, higher-content cars like Fit and the Ford Focus, with high safety and high content. That makes it harder to decide to buy a 5-year-old used car.
What's missing in the lineup?
Every manufacturer has a "We would love to have ..." list, whether it's a full-sized truck or whatever. Could we sell 10 more units a month if we had a full-sized pickup? Sure. But is it worth building? Is it worth the resources, everything you'd have to do? No, it's not worth it. It's a saturated segment.
But is Honda missing anything? A plug-in electric, but we're getting that in a few weeks. We need to continue to evolve in those types of cars.
It would be nice to have a more sporty, enthusiast vehicle, but the problem is that you have to build enough of them to make sense. A lot of manufacturers do spoiler-and-stripes packages, and it doesn't change the car. We don't need that. If we're not going to build an Integra GS-R, we're wasting our time.
We have the Civic Si, so if we were to come out with a Civic Type R, we would love it. But does it make financial sense or sense for the brand? I don't know. You look at the resources it takes to do that, and what is the real market penetration, what are the real numbers? To do it right, it has to be a more expensive car. It needs different interior, suspension and brakes, so when it comes in $5,000 more than a Si, will it sell?
The S2000 was a great car at the time because there wasn't anything like it out there. There were [Mazda] Miatas. But look at the average age of the S2000 buyer; it was a pretty old demographic.
As a used car, the affordability has gone up and the buyer is younger. There might be a few years of economic recovery before people start engaging in that kind of toy again.
What is your opinion about Honda searching for a new ad agency after so many years with Rubin Postaer?
They are reviewing the relationship with RPA and seeing the possibility of what's out there. RPA is still in the running. I think the advertising has gotten much better over the past year. I don't know if RPA is the problem. A lot of times you get what you ask for.
Dealers like to complain about a few things, and one of those things is advertising. It's easy to complain about it, to sit back and say you hated an ad, when you didn't have to make a decision about it. Ask 100 dealers what the perfect advertisement is, and you'll get more than 100 answers.
I struggle with it with my own stores, how to create a sense of urgency and build a brand at the same time, when there's a lot of stuff in between.
It's short-sighted to say Honda and RPA can't produce a good ad. They have to get people in the showroom today and get Gen Y considering the brand. And those two ads don't look anything alike.
When things are going well, and there's growth, everyone loves the agency. When things aren't going well, everyone hates the agency. They are an easy scapegoat.
What has Honda said about dealer discontent with stair-step volume incentives?
Honda reluctantly uses stair-step, and it does work. They only do it when they have to. Dealers don't like stair-step because they don't like their volume objective. You only have so many tools in the bag. It is a topic we talk about. They understand the pitfalls that it creates. But it does work, and sometimes you just gotta do it. The dealers who don't like it are very vocal. But the dealers who do well, you don't hear from them.
Now that Honda's four major vehicles -- the Civic, Accord, CR-V and Odyssey -- have all been launched in the past two years, are you worried about things getting stale?
We've been there before -- 2006 to 2008 was the same thing, and Civic was still the No. 1 compact, and Accord did really well. It depends on how well Honda manages the midcycle changes. It doesn't scare me at all. Honda is not a brand where, if that car is more than 3 years old, it's just sell-proof. And Honda promotes leasing, which brings people back into market in those later cycles.
How would you rate Honda's loyalty programs?
They're working on some initiatives now. They're figuring out what creates loyalty. You can throw money at it, but does that create loyalty? There's return-to-market loyalty, then there's brand loyalty, when everyone in the family drives Hondas.
Short-term loyalty doesn't do anything. We need high brand loyalty, and we've enjoyed it for a long time because our products were better than everyone else's. But that gap is narrowing. Hyundai has some high loyalty numbers, but how are they getting that? Most of those folks haven't returned to market yet.
It's a relatively easy concept -- dealers will tell you they want [loyalty] cash, which creates return-to-market loyalty. It doesn't necessarily create brand loyalty. It's just an additional consumer incentive. It's just another rebate and a way to eliminate who gets it. So the question is how we at Honda make the whole aspect of the experience so we get the whole family loyal -- how do we manage the relationship?