John Mendel has seen mostly good times since joining American Honda Motor Co. in December 2004. The company surpassed 10 percent market share in 2008, but since August it has been in the same dire straits as everyone else.
Last month Mendel took over as executive vice president of automotive sales, replacing Dick Colliver, who retired. Mendel, 54, had been executive vice president of automotive operations.
Mendel started his career with Ford Motor Co. in 1976 and moved to Honda after a stretch as COO of Mazda North American Operations. He spoke with West Coast Editor Mark Rechtin about tough times and how Honda is coping.
Honda Motor eked out a profit for the fiscal year that just ended. What was North America's contribution, and what will be its contribution this year?
Everybody did their part. We are seeing particularly difficult times here. The U.S. industry started feeling the effects early last year. We were fortunate in the U.S. that as long as there was any kind of action we maintained our business pretty well. Last May we sold a record number of Civics, more than 50,000, but August hit us full force. Our pain was delayed a little more than the rest of the market. Certainly after August we have suffered the same as everyone else.
How have you reacted on the manufacturing side?
We've been quick to respond. We've already taken out 200,000 units from the business in North America. We reacted quickly on the cost and revenue side.
Do uncertain economic times favor Honda?
You'd love to think there's a certain resiliency to the brand. In times of uncertainty, customers shop a surer thing. Honda is a safe harbor for customers for a lot of rational reasons. In times of relative prosperity people are willing to try something different. So in difficult times, we have the opportunity to benefit. Honda fills that niche -- that if I have to buy a car I don't have to worry about it and explain my investment to anybody.
How do you assess the first four months of 2009, and what will the rest of the year bring?
As an industry, we're pretty poor. I would like to think we could get some stabilization, at least at the current level. I am hoping we could we get to 10 or 10.5 million -- some business model we can stabilize. Then it depends on consumers feeling confident again. The consumer confidence levels are just scary. I don't know how much worse it can get. There are some signs that it's starting to bubble. Either people are used to the pain, or they are more confident the world won't come to an end.
Over the past four to six years, we've discounted consumer confidence reports because of low interest rates, huge incentives, great products and relative economic prosperity. People stopped thinking of the car as their second-largest purchase, and now they are once again. They are not looking at it like, "My next raise will take care of the payment."
This goes beyond sticker shock. We've focused on affordability, but it wasn't sticker price; it was payment. As the financial markets have become more conservative and some manufacturers have gotten out of leasing, it's become really tough for customers because suddenly you can't offer that attractive option anymore. Now we're back focusing on purchase, and people are now shopping by payment bands, not price bands.
What are you doing to reduce days supply, both at the ports and rail yards and for dealers?
We adjust production. We designed in some flexibility at the plants that we can adjust between car and truck on the same line, so we can adjust for mix shifts. But with the dramatic nature of the whole market dropping, we've taken production out. We haven't blown our brains out with incentives. We've been aggressive, but nothing that would damage customer value or residual value.
Do you expect continued production cuts?
Barring any sudden shock to the economy, we're in a pretty good adjustment.
Are any Honda dealers closing?
A lot of the news has been about the supply base. But you have the same interconnectivity in the dealer body. About 70 percent of Honda dealers have other franchises, just like 75 percent of Toyota dealers do. You can control your own situation, but you cannot control the burden of another franchise that could take down yours. But we haven't seen that yet.
What message do you have for dealers about the rest of 2009?
You've had to do what you've needed to do to remain competitive and viable so batten down the hatches. That will carry you well through the year. Any uptick in business we see should be an opportunity for you. But the operations are pretty much sized for where you need to be. Hopefully, we can keep the expenses where they are, and that should pay off in added profits.
Do you see Honda gaining retail market share as a result of Chrysler's bankruptcy?
When the initial conversations happened, when GM and Chrysler had difficulties, people thought bankruptcy equaled liquidation. But now it's more about reorganization and restructuring and coming out stronger. We're not looking at it as a share gain. Look at the airline and steel industries. They've come back.
From a marketing standpoint, how does Honda react to the Detroit 3 in crisis?
There will be no change in what we are doing now. About 80-plus percent of people are aware of Honda and familiar with it and have a strong opinion of it. To the degree they've considered Honda before, they will again. If they have never considered Honda, they may not again. There is no predatory opportunity in this.
What percentage of Honda suppliers in Ohio, Canada and Alabama are shared with Chrysler and GM and thus are imperiled by bankruptcy filings? Do you have a contingency plan?
We have a core number of critical suppliers, and we depend on them for the majority of our business. In any given year, some percentage of suppliers turns over, whether its 17 percent or 15 or 10. In no place are we single-sourced on any single item, so we have a breadth across several suppliers for most components. Some suppliers are of greater concern than others.
Do you regret canceling the S2000 now that it appears the Pontiac Solstice and Saturn Sky will go away?
No. But we also didn't say we're not going to replace it. It was originally intended for just three years, but it continued to evolve from that. With regulations, etcetera, we may see a sporty vehicle that fills that void. It could be the CR-Z (hybrid) in the future. We'll see that car probably in the next couple of years.
How does Honda feel about developing plug-in hybrids?
There are going to be a lot of different solutions, whether it's plug-in or natural gas or gas-electric or diesel-electric or bi-fuel. We focus on gas-electric and hydrogen, because that's what we think is a viable solution to the customer. In the near term, it's the internal combustion engine with other derivatives. Everyone is going to play to their strengths.
How does Honda overcome the marketing dominance Toyota has with the Prius?
Toyota has done a phenomenal job with Prius. They have made it as ubiquitous as Kleenex or Coke. "Prius" is the generic word for hybrid. But if you buy into the fact that no one can overcome Prius, it means no one else can sell a hybrid other than Toyota. We don't think that's true. Everyone is selling hybrids. You want to provide value for the customer, and the new Insight does that. It was not intended to spark a price war. It was really about bringing a more affordable hybrid to market. There were a huge number of people who wouldn't consider a hybrid because of image or price.
Are V-8s and rear-drive essential to making Acura a Tier 1 brand, even if it is anathema to Honda Japan?
No. Ask me that question five years ago, I would have said, "Absolutely." But today, they are not essential. That doesn't mean we won't do it. But the vision has changed. It's less about the how you make me feel and more about the way you make me feel. There's a change from excess versus smart luxury. Yes, the brand has to be aspirational, new, different and vibrant, but no one can tell you how you do that.
Does Acura need to expand its lineup?
It will. But it will do it in a meaningful way. They will be vehicles that add to the brand and directly relate to building the brand cachet.
You recently formed Acura Financial Services. How will it work differently?
It's one brick in a larger foundation for Acura that we set out several years ago to bring to market. Luxury customers look for something a little different. Their buyer profile allows us to do something a little different. We are looking for the tenets of speed, flexibility and knowledge.
You're taking over for Dick Colliver, who is somewhat of a legend around here. Any messages to dealers about what to expect?
With any change of management, everyone hunkers in the corner and asks what is going to change. But nothing is really broken. Honda and Acura have been very successful. So don't look for any big changes. Any changes will be market-driven, things we have to do.
For 50 years, we've built an incredibly strong brand, and I'm not going to do anything to detract from that. I've been here for five years, so I still have my protective wrap on. They still won't tell me where the good restaurants are. But working with and learning from Dick for the past five years I think means we'll have a seamless transition.