Honda wants to embrace its low inventories

Prior to the pandemic-induced vehicle shortages that have become the norm in the auto industry, dealership lots were full of cars and trucks in nearly every color and trim, waiting for consumers to choose one like a loaf of bread at the supermarket.

While retailers may be pining for the good old days, American Honda Motor Co.'s Dave Gardner says not so fast.

Current inventory levels are certainly not ideal, but it's also worth pondering where to draw the line when supply conditions improve, said Gardner, executive vice president of national operations.

He believes there are positive lessons from the current crisis. Automakers and dealers have been too focused on jamming lots full of new-car inventory and less on an efficient retail model that addresses the cost of millions of vehicles sitting around, waiting for a buyer.

"Everything we've done has been focused on selling what's on the dealer lot," Gardner said last week. "If we'd asked our dealers two years ago, could they envision operating in a low-inventory environment, they would have said we're nuts."

Retailers are thriving despite the supply struggles, he said.

American Honda has traditionally had inventories of 300,000 new vehicles nationally, plus 100,000 in the pipeline. That's now gone, but the scarcity has brought financial benefits.

"If you're able to take a significant part of that overhead out of the equation, I think you make this a much more efficient and profitable business for all concerned," Gardner said.

Finding the ideal number will take some study, he said. And it may involve changing consumer and dealer behavior. Buyers are now being forced to pre-order popular vehicles — and wait. One advantage to ordering, however, is a personalized vehicle that can raise customer satisfaction.

"If we've always operated historically with 400,000 vehicles in the pipeline, could we do that with 300,000? ... Could we do that with 100,000? I don't know what the number is, but we are certainly now doing the investigation," Gardner said.

Honda and Acura dealers are now selling deep into the production pipeline. American Honda's inventory at the start of 2022 was 20,000 on the ground, he said.

One example of American Honda and its dealers adjusting: Financing and lease incentives are guaranteed at the time of purchase, even though they may no longer be valid at the time of delivery, Gardner said.

American Honda reported 2021 sales of 1.47 million cars and light trucks at the Honda and Acura brands, an increase of 8.9 percent over 2020. Deliveries in pre-pandemic 2019 totaled more than 1.6 million vehicles, including 157,385 at Acura.

Sales in 2022 are likely to fall further, Gardner said. "Based on what we know today, it will be a challenge for us to match last year's sales level." He put the number at 1.2 million to 1.3 million for the Honda brand for 2022 and around 160,000 at Acura.