U.S. Acura dealers are looking forward to having the Takata airbag crisis behind them in 2017.
Like their Honda brethren, Acura dealers last year were preoccupied with resolving Takata problems for customers, and the ripple effects drove down profits nationwide.
Without the airbag problems this year, dealers hope for a turnaround in profitability and a renewed focus by their new, used and service departments on all things non-Takata related, according to Jim Morino, chairman of Acura's dealer advisory board and owner of Acura of Lynnwood, just north of Seattle.
But concerns remain: Acura General Manager Jon Ikeda has pinned the brand's turnaround largely on revamping its sedan lineup as consumers increasingly move toward light trucks. And reliability -- a longtime Acura calling card -- will need to remain strong, particularly as new-car profits dwindle and prices and lease numbers increase, putting more pressure on certified used-vehicle and service departments to boost earnings.
Morino, 61, spoke with Staff Reporter David Undercoffler about putting the Takata crisis in the rearview mirror and facing the road ahead.
Q: How was 2016 for Acura?
A: It was a tough year. Sedan sales are way off for everybody, not just for Acura, so that definitely affected us. But the midmodel change for the MDX was very well received and is selling very, very well and the RDX is selling very, very well. So that helped us fill some gaps with that.
And of course the Takata airbag situation caused havoc in all of our lives. But we worked through it. I think we're in pretty good shape now. We've pretty much got all of the units that were affected taken care of by the recall. Acura told us at the beginning of the year that we wouldn't see airbags until late in the year and we saw them a lot sooner than we thought we would see them, so that's been a nice surprise.
Have all affected Acuras been fixed?
There's a few left with Acura Financial Services at auction and so forth that still need to be taken care of. But Acura's goal was to take care of the clients first and those were pretty well taken care of.
Since Jon Ikeda took over at Acura in 2015, he has made it clear he wants to pin the brand's turnaround on sedans. Is this a hard time for a company to push into sedans?
We know that what is coming is more aggressive for sedans. They're trying to do some things designwise. Was it smart? I don't know. Everybody's in the same boat: Audi, Mercedes, Lexus were relying upon sedans to do better than they did. Nobody's got a crystal ball. It's hard to say if that's the right or wrong move; it's still the direction that Jon wants us in, that's going back to "precision crafted performance." You can't have performance without some kind of performance sedan.
They started with the NSX [in 2016] and I think that Jon's idea for the future is that we get more performance for the rest of our line over the next four and that's more aggressive for both sedans and sport-utilities. You've got to draw the line in the sand somewhere and start somewhere. Unfortunately it was  but they've got to start doing it and not let it stop.
Does it make sense? Do you like the sedan-focused strategy through the end of the decade?
We've kind of floundered as a brand as to what our direction is. I think Jon and Mr. Mikoshiba (Toshiaki Mikoshiba, CEO of American Honda Motor Co.) taking over [in 2016] and giving us that "precision crafted performance" as a tag line to get ourselves started, I think it's the right direction and it's what the brand needs to identify itself and say who it's going to be and not change every three years who we are.
Almost everybody on the [National Dealer Advisory Board] has probably been with [Acura] since almost inception. We've been through highs; we've been through lows. But there's been inconsistency in who we are. We've all been looking for what that is and hopefully they've drawn a line in the sand and said this is what it's going to be and here we go.
Is there tension over executives in Japan asking Acura to do something in the U.S. but then not giving the brand adequate resources or people or products?
I think from a dealer standpoint, looking outside in, I think that that's kind of how we've felt; it's been that way in the past. I think Mr. Mikoshiba, Mr. Mendel (John Mendel, executive vice president of American Honda Motor Co.) and Mr. Ikeda were in Japan for the business meeting and they have the full confidence of the Honda board to support this brand. So that was a good thing for us to hear. You always question what the commitment is but they're fully committed to the brand and going forward and they've told us that they will have the resources to do what they need to do to make this brand successful.
How has the NSX affected dealers?
Again, they kept delaying it, but again we appreciate and hate the delays. We hate the delays because we have people waiting for it but we appreciate the delays because we don't want to have them introduce an automobile that's going to have a bunch of problems. And in talking with clients and even looking at what the press is saying about the car, I mean it's a phenomenal automobile. So as time goes on we just need to get more of them out there. Because again some of the preconception is it's similar to what the old NSX was but this is nowhere near what the old NSX was.
Are there any problems getting the vehicles dealers need when they need them?
Well they're at capacity for MDX and of course MDX being our hottest-selling model, they're going to be moving capacity to use both Alabama and Ohio so that's definitely going to help with supply.
Are there any other problems with supply?
MDX and RDX can be tight. TLX and ILX, the inventories are building. We're formulating some plans to try and sell more of those vehicles.
How has profitability been for Acura dealers?
It's not a secret: Profitability for Acura nationally overall is down. The dealers are still profitable. But we're down from where we were in 2015 and that is definitely a concern for dealers; total profitability because that's what keeps us in business and gives us the ability to take care of clients and retain employees.
Acura feels that that's a big concern of theirs also. But again with the Takata airbag issue, it caused used-car departments to be down, it caused service departments to be down, it was a big drain on again the manufacturer and the dealers.
What Acura dealers' other concerns?
Reliability from the dealer standpoint. With the softening of the sedan market and the overall profitability of dealerships being down, a concern is the one thing we maintain is the highest quality in the industry to keep people coming back from Acura.
I would also have to say we've had some very candid conversations about aggressiveness of advertising and awareness for Acura. But I think that they are investing the assets and I think they're again changing that message so that it's more aggressive than it has been in the past.
It's taken some time and pushing but it's advertising and saying what deals are out there. Where it's always been a product-driven advertising and awareness, now they're doing more call to action to get people in to the dealership.
What's the outlook on leasing for Acura?
Leasing is going to be a huge part of our marketing tools. With the price of vehicles going up, it's going to make it more advantageous for a client to get into a vehicle, lease it and then it's going to keep them turning. Because otherwise we're looking at five- to six-year financing to get a payment to where a three-year lease will be. So because of the price of vehicle and inevitably one of these days interest rates are going to start creeping up, leasing is going to be a lot more advantageous. For Acura over the past year as a whole, it's increased. Here at my store, we've gone from 25 to 26 percent to pushing 40 percent. On the East Coast it's just astronomical. It's just a huge number what they're leasing.
But leasing is here. It's going to be the big piece.
How do rising interest rates affect dealers' floorplanning approach?
Profitability is a key for all of this and flooring is a huge piece of an automobile dealership's expenses. And as interest rates rise, that just increases that expense. So again that's the key to making sure we've got the marketing to sell the products we have, to make sure we've got the products. The right product and selling the right amount takes care of a lot of ills. So that's one of the biggest things they can do for profitability is make sure they've got the right products at the right time. And then when we don't, again we've got to market our way out of it, and that's what we're doing now with sedans, as every manufacturer right now is.
Now that the Takata problem has largely been resolved for Acura vehicles, what's the outlook for service in 2017?
Service and parts have always been a strong percentage of our business. They're looking at marketing tools. Distribution has become more efficient and daily orders have really helped dealers. The longevity of an Acura product is in the hundreds of thousands of miles so we're working at getting those people, not only the people who have bought the first time but in that secondary market, coming back.
So service is -- at least for us and looking at numbers for the nation -- we were down a little bit in net profit from where we were last year but total sales were up. That Takata airbag issue, it really took a bite just to take care of all those clients. So sales were up but net profit was down because it was just more expense to the dealers to take care of those clients during that process. But the dealers and Acura were very committed to making sure that that client was taken care of well.
What do you hope to accomplish as dealer council chairman?
Our main goal over this year is to make sure that HMC is committed to this brand in the United States and making them aware of the concern of the profitability of the dealer body in North America. So I think Mr. Mikoshiba knows that and I think he has the commitment from the board that this is a viable brand and we're here forever so the long-term goal of dealer profitability is important. We had some very candid conversations about that and he's aware of that and he's going to do everything to improve the profitability of dealers in North America.
It's been a tough period here during this process, but I think we're on the right track. I think we've got some great things coming in the future and some things to be very optimistic about the brand. I look forward to the next 10 years.