A return to tradition in Honda's new CEO

TOKYO — Toshihiro Mibe, the man tapped last week as Honda's next CEO, had an epiphany about the importance of looking outside for new perspective when working with General Motors on a past project.

It was back when Honda and GM were cooperating on efforts to reduce the use of platinum and other precious metals in catalysts. The companies had different approaches. Honda was focused on finding a technological solution, while GM took a pragmatic route based simply on the total vehicle volume it expected to sell.

To Mibe's surprise, GM's way slashed precious metal use by more than Honda even imagined possible.

"They had a different perspective," Mibe said of the eye-opening interchange.

"We thought that maybe we shouldn't just rely on ourselves," he recalled last week at a press conference at Honda Motor Co.'s headquarters here, after the company announced his appointment as CEO. "I will opt to use alliances to accelerate the process or rely on outside experts to accelerate the process."

Mibe's outward-looking philosophy indicates Honda will double down on its recent strategy of turning to partners for the expertise and resources it lacks. But his appointment also restores the carmaker's focus on technology and autos at a critical time for the middle-size player.

Selecting the veteran powertrain engineer steers Japan's No. 3 automaker back to its long tradition of promoting its global R&D boss to the head of the whole company. Honda broke that custom in 2015 when it appointed its current CEO, Takahiro Hachigo. Though also an engineer, Hachigo never led the powerful Honda R&D Co., the product development subsidiary ensconced in a sprawling technical center and proving ground north of Tokyo.

By contrast, Mibe has been a top executive at Honda R&D since 2016 and was appointed its head in 2019. He has a front-row seat to the vexing issues Honda must tackle in an industry under siege by electrification, connectivity and autonomous driving.

Analysts say he inherits a company in fairly good health but one with a lengthy list of challenges.

"We are in an era of changing technology, so this is an appropriate time to have someone from the technology side lead the company," said Christopher Richter, chief auto analyst at CLSA Capital Partners Japan in Tokyo. "But the new CEO has to pick up a lot of unfinished tasks."

Indeed, when Mibe, 59, takes the reins as president April 1, he faces a host of problems on top of ramping up Honda's slow-moving EV program and pushing development of self-driving cars.

Key among the work will be fixing lackluster profitability in Honda's automobile business. Honda's challenge was underscored just last week when the brand tumbled in the closely watched J.D. Power Vehicle Dependability Study, which measures problems in vehicles. Honda fell to a near-bottom 27th position overall, from 18th the year before.

The operating profit margin at Honda's automobile business was a scant 0.8 percent in the first nine months of the current fiscal year ending March 31. Even in the previous year, before the COVID-19 pandemic torpedoed sales and production, it was a tepid 2.9 percent.

Automobiles account for only 18 percent of Honda's total operating profit so far this year. Motorcycles are the company's new cash cow. Two-wheelers chipped in a robust 52 percent of Honda's profit and racked up 12.1 operating profit margin.

"Fixing the automobile division is job one for this company," Richter said.

Thanks to motorbikes, overall profits at Honda remain resilient despite the pandemic and the global microchip shortage. Operating profit surged 67 percent in the October-December quarter. The company is even on pace to supplant Nissan Motor Co. as Japan's second-biggest automaker. But that is largely because of Nissan's dramatic sales drop in recent years.

Hachigo's time as CEO has been marked largely by repositioning Honda for a new era.

He reeled in the rapid expansion undertaken by predecessors that left Honda with bloated production capacity. Hachigo moved to close assembly plants in Japan, the U.K. and Turkey. He also pulled the plug on auto production in Argentina, shifting all output there to motorcycles.

Meanwhile, he departed from Honda's long-standing go-it-alone strategy to seek new partners to help it shoulder the brain power and bucks needed for the technologies of tomorrow.

Chief among those was Honda's new alliance with its North American competitor General Motors.

In April, Honda announced it will cooperate with GM on two new electric vehicles.

In September, Honda embraced GM even more deeply, announcing an auto alliance to explore joint development of platforms, drivetrains, materials, purchasing and manufacturing over a wide range of segments to help Honda compete in North America, its onetime golden goose market.

The alliance marks a big departure for a house-proud company that wowed the world with its breakthrough clean-burning CVCC engine in the 1970s and later helped pioneer the age of hybrid vehicles.

GM is no stranger to Mibe. Honda's next boss was on the team that worked to supply the Detroit manufacturer with Honda-made ultralow-emissions V-6 engines in the late 1990s.

Honda's U.S. operations need to lean on a big partner that has money, resources and local know-how, said Takaki Nakanishi, head auto analyst at the Nakanishi Research Institute in Tokyo. The automaker has little alternative to pursuing growth in the critical U.S. market, he said. Honda is already near the top in almost every segment where it competes. Further expansion will come only from branching into new areas such as mobility services, robotics and trucks.

Said Koji Endo, senior auto analyst at SBI Securities in Tokyo: "They don't have enough capacity to do everything by themselves."

Hachigo is handing off a company that is ready to embrace change. He reorganized operations, bolstered Honda's business in the all-important China market and brought the loosely independent Honda R&D Co. under the umbrella of the parent company. It was all in an attempt to speed decision making and control cost.

Hachigo also floated the goal of deriving two-thirds of Honda's global sales from electrified vehicles in 2030.

But in the hot field of full electric vehicles, Honda increasingly looks like an also-ran. The second-generation Clarity sedan was introduced with electric, plug-in and hydrogen fuel cell variants. Honda eventually stopped selling the lackluster EV version. Last year, Honda returned to the EV segment with the all-electric retro-styled subcompact E hatchback.

But through December, Honda sold only 4,108 Es in Europe and just 450 in Japan.

Honda must conserve resources to channel energy into independently developing its electrified products for markets outside the U.S., such as China, Japan and Southeast Asia.

A new lineup of EVs on a dedicated platform is on the way. Honda says the new global EV platform will arrive before 2025 and underpin larger EVs.

Mibe says his job will be accelerating Honda's shift into the new era.

"I understand what needs to be done," he said. "Time is crucial, especially these days."

Mibe joined Honda in 1987 and became the head of global powertrain in 2014. He is a bona fide engine engineer who helped lead Honda's hybrid push.

He worked closely with Hachigo to develop the company's 2030 electrification targets.

They also worked on the realignment launched in 2020 to better integrate Honda's sales, engineering, development and purchasing divisions, which long operated as stubbornly independent fiefdoms.

Fully leveraging that reorganization will be a key task for Mibe. But because Mibe is only two years younger than Hachigo, at 61, analysts don't expect the new boss to be around as long as his predecessor. Hachigo led the company for six years, about average for Honda's CEOs.

After that, some say, Honda will need leaders who came of age with a more digitally oriented outlook.

"In the next five to 10 years, Honda has a lot to do," analyst Nakanishi said. "Cars are now a digitalized product. The software era has to be led by the younger generation."