New products, better inventory have Honda poised for growth

Honda spent much of 2023 clawing out of an inventory shortage that slowed growth in 2022 all while battling a new set of economic hurdles.

But a slew of new product introductions — including hybrid offerings on the Accord and CR-V and three TrailSport variants — helped Honda keep consumers engaged and close the year up 32 percent, with sales of 1.162 million, just shy of its 1.2 million goal.

It also added back one point of market share it lost in while supply was severely constrained.

Brian Kanyan, chairman of the Honda National Dealer Advisory Board and a partner at Bill Page Honda in Falls Church, Va., said the growth signals that the brand is moving in the right direction.

"Inventory started to come back in November and December," Kanyan said. "Going into 2024, we're definitely going to see some growth from a production standpoint."

Adding to what Kanyan describes as an already complete lineup, Honda will launch the Civic hybrid this summer and the Prologue electric midsize crossover in March, which will use General Motors' Ultium battery-electric platform.

Honda planned to partner further with GM on jointly developed affordable electric vehicles on Honda's e:Architecture platform in 2027, but Honda put the deal on ice last year citing a changing business environment.

The Japanese automaker is now going it alone. Last month at CES, Honda showed off a pair of EV concepts — the Saloon and Space Hub — and announced a line of EVs called the Honda 0 Series that it will roll out starting with a sedan in the U.S. in 2026.

Whether it's the direct replacement for the affordable EV project is unknown, but Kanyan said dealers are in favor of Honda developing its own EVs.

Honda said it will take a different approach to EV design and engineering, such as using lightweight battery packs and e-axles to maximize interior space, increase range and speed up charging time. The series also will have next-generation autonomous driving technology that Honda said will enhance vehicle safety.

Kanyan, 57, spoke with Staff Reporter Carly Schaffner about key takeaways from the inventory crunch, Honda's approach to EVs and more growth in 2024. Here are edited excerpts.

Q: How was 2023 for Honda dealers?

A: We dealt with a lot of different things. First off, I'll say 2023 was another year of challenges, but the results exceeded my expectations. Dealing with inventory [constraints], inflation, multiple interest rate hikes and, as far as being a Honda dealer, we had some UAW [strike] trickle effect. But dealers were able to perfect selling with single-digit days' supply, and profitability was very strong.

Do you think Honda intends to maintain a lower days' supply?

I do and controlling days' supply is going to be a focus for 2024 and beyond. Especially with interest rates where they are, carrying costs are going to be a lot higher. I do believe that OEMs, in general, don't want to have the large days' supply they once had where they have to give excessive incentives to move the vehicles.

Will that be the big topics of discussion among Honda dealers at the NADA Show?

Controlling days' supply and continuing to keep throughput per dealer strong. With the current market conditions of interest rates, inflation and consumer costs in general, matching supply to demand is going to be very important.

The fuel pump recall and the [subsequent] stop sale for dealers on the affected pre-owned vehicles also will be a topic. Because of the quantity of vehicles out there — about 2.5 million are affected — I think it's going to be a topic. Honda makes some of the most reliable vehicles on the market and has historically been good about finding timely solutions. It's still too early to know when it will be resolved, but I'm confident they'll figure it out in a timely manner.

Another thing, which is really an industrywide topic, is EVs in general. With the pace of EVs slowing in the U.S. market and certain other OEMs pulling investments, timing of future EV products matching customer demand will be critical.

What's your opinion about Honda's pace to enter the EV market?

They have positioned themselves very well. Granted, we can say they've missed out on early adopters, but I think we, as Honda dealers, are in a much better situation with the timing of the Prologue.

What do you think about the Prologue?

I thought it looked fantastic. It's a very attractive vehicle, but it just feels like a Honda. It's very intuitive. I haven't had the opportunity to drive it. But when I sat in it, it was solid and I knew where everything was.

What does the Prologue distribution strategy look like?

Dealers in ZEV and ZEV-friendly states should have the vehicle in early March — that's the goal. Honda is going to prioritize those states first, and distribute across the country after that.

What do you think about the Honda 0 Series of electric vehicles?

It's very exciting and they're thinking outside the box. I haven't seen the two concepts in person, but the design is definitely cutting-edge. I think it's kind of Honda dreaming outside the box and trying to combine originality and style and create excitement. Only time will tell what actually comes to market [compared to the concept]. They're trying to change the size of the batteries, they're making it lighter and range is going to be everything. Honda is bringing its uniqueness to the EV market.

Will the market be in a stronger position of adoption when the sedan comes out in 2026?

That's the million-dollar question. We're going to learn a lot about the EV market, including mandates, customer demand and infrastructure over the next couple of years. I certainly hope [consumer adoption] will be stronger and people will continue to gravitate toward EVs, especially if the mandates stay in place.

How will an electric sedan complement the Prologue and the larger crossover that's expected to come from its e:Architecture platform in 2025?

Honda is committed to moving toward carbon neutrality by 2050. Adding EV models is all part of that. From the dealers' perspective, it's just a matter of timing and customer demand as to when these things are released.

Honda said the 0 Series will use its next-generation autonomous driving features that it considers Level 3. Is that something consumers want?

That technology is here, it's just a matter of what the appropriate usage is for it. Customers are on both sides of the spectrum. We see customers that want it all and can't wait, and then you see the ones that are leery are very concerned about future technology that continues to unravel.

And as far as Honda's new-vehicle inventory going into 2024, what does that look like and what is the expectation for days' supply?

Honda and the dealers had a very good December and we sold down well. So, we're still in a good position moving into [the new year]. A challenge for 2024 is going to not only be keeping days' supply in check, but doing it model by model. Certain vehicles can creep up on you while some are in short supply.
Overall, a reasonable days' supply level is 20 to 30 days. No one wants to go back to a 60-days' supply of any vehicle — the dealers or the manufacturers. We're all focused on that together.

Are there any nameplates in tight supply?

As far as tight supply goes, the CR-V hybrid and HR-V — which is selling well — are the vehicles in tight supply.

What has been the dealers' reaction to the revised Accord and CR-V lineups that put hybrids at the forefront?

I think [adding hybrids to core models] is an extremely important strategy and has been very successful. Dealers continue to do very well with hybrid models. It's taken time for customers to get there, but they are now accepting of hybrids and they're enjoying them. They ride really well and people are appreciating the number of times tthey have to go to a gas station. Of course that changes depending on the price of oil and gasoline, but there has been a significant [increase in] awareness of the great gas mileage.

Are dealers excited about the Civic hybrid launch this summer?

We lost a line when the Insight hybrid sedan [was discontinued after the 2022 model year]. The Civic is part of Honda's history so adding a hybrid model into that mix will be very important. Civic is still such a popular vehicle so [the hybrid] is a necessary part of the puzzle. It's going to come in both the hatchback and sedan.

If Honda can continue to increase the mix of its core vehicles, and increase hybrid over the ICE vehicles, then we'll continue to have success.

Is there anything missing in the lineup?

I think Honda has a complete lineup. In the past, some dealers have requested a large platform SUV or truck, but I don't see Honda entering that market anytime soon.

How is Honda dealership profitability?

2023 was a very profitable year for Honda dealers. Over the past few months as inventory levels have increased, there definitely has been pressure put on front-end grosses, which has an effect on all dealers' profitability.

What is Honda predicting for vehicle margins on new and used vehicles for this year? Has there been any restructuring?

At this point, there has been no restructuring and I don't want to speculate on what they're predicting. But as consumers are faced with increased overall transaction prices as well as higher interest rates, pressure will continue to be placed on vehicle margins in 2024.

Honda has been doing a lot of work to expand its used-vehicle offerings, including most recently making short-term leases available on certified pre-owned vehicles. What are dealers saying about these programs?

Dealers appreciate any support or programs that Honda offers to help us sell more certified vehicles and retain customers. The CPO leasing program is a long-term goal of Honda's. My understanding is the number of CPO leases as a percentage has grown significantly although the overall volume isn't where any of us want it to be yet. There's definitely challenges in leasing pre-owned vehicles and Honda is still working on that program.

Has Honda talked about increases in incentives for 2024?

They haven't specifically talked about increasing incentives in 2024. However, I'm confident that Honda will do what's necessary to hit their goals and make sure the vehicles sell. Retention is definitely a focus; they want to retain the customers they have.

What is Honda's leasing outlook for 2024? Do you expect to see any deals or increased penetration?

Honda has one of the highest leasing penetrations in the industry. They are committed to leasing, and I don't see that changing. I believe Honda will continue to offer strong leasing programs to both retain and attract customers to the brand in 2024.

How did dealers react to the news that Honda would not be moving forward with its plan to jointly develop affordable EVs with GM?

Both Honda and GM will have benefited from working together on the Prologue; however, the Honda dealers I've spoken to seem excited Honda is going to put its own brand's uniqueness and identity on its future affordable EVs.

Honda is also working with Sony on a joint venture EV called the Afeela that will be built and sold in the U.S. Has Honda given any more clarification on the sales and distribution strategy?

The sentiment amongst Honda dealers has not changed. Dealers still have concerns, but we have not received any additional information or updates regarding Afeela.