How Honda hopes to bounce back with EV switch

How long is an acceptable wait for a customer to get their car?

RA: “I’d say 12 weeks - and as an average, that’s about where we are. Some we can deliver quicker, some you might have to wait a little longer. But overall we’re there.

“That’s a big shift, and it has taken some hard changes in mindset to get there. It used to be that we had cars sitting in a port and we could deliver them in a week or two. Now we've shifted from chasing registrations to responding to customer order intake - and I think it really took us 12 months to believe in that model.

“It’s not easy. In some ways, Europe has it easier, because its stock is centralised and can be moved from market to market, whereas we have right-hand drive to consider. But by focusing on customer demand, rather than pushing registrations, we have changed our business. It's a much more efficient way to manage supply and meet customer needs.”

Are customers happy to wait?

RA: “Yes, if they're getting the car they want to the spec they want, as long as the supporting communication is strong then they are. The bumps in the supply chain can make those communications hard for a global business, but we’re improving and learning all the time.”

JMS: “We can plan, too. PCP and lease cycles lend themselves to consumer planning, and one of our advantages is that our business today is about 80% retail. We're very open to taking unexpected orders, of course, but the majority we can plan for - and even then, given our retail mix, the surprises will come in small numbers, not bulk orders for 500 cars out of nowhere.”

How have the dealers adapted to the focus on profit?

JMS: “Actually, we started this move prior to Covid, and I think that has put us in a good place now. It was a shift in approach, but it was one that not only quite quickly improved profitability but also moved it ahead of the industry average. Balancing volume and profit was quite radical back then, but it meant they enjoyed the rewards earlier. It means we and they are in good shape.

“All I’d add is that for all that, it’s not easy. We need a very high level of mutual trust and respect to make this work. We can explain the rationale and position it as what’s best for the long-term health of the business, but we have to look each other in the eye and know that if either says they will do something, they actually will.

“Add into that the fact that anything we do today may change tomorrow - because of the kind of world we are living in - and then there will always be things we can improve. But the fact is we're building a mutually beneficial partnership like never before.”

Does that automatically lead to an agency model?

RA: “It’s a conversation. That doesn’t mean it will or won’t happen - but of course we're considering it, just as we are subscription models, wider mobility solutions and so on. Anything that's a potential channel for better business is open for discussion.

“In this industry right now you've got two choices. You can stay as you are and see where that leaves you, or you can adapt and seek to thrive. We prefer to look at all of the options that are coming.

“What’s key though is how you do it. We announced a 30% reduction in our network, but we took two years to do it as we believed that is the right way. And if we decided in the future that agency was the right way, it would be done in discussion with our retail partners, our investors, and it would only be possible if it was mutually viable. If they didn’t want to come with us on that move then it wouldn’t be possible.

“Wherever that discussion leads, our operation is only possible with physical representation operated by expert retailers. So we need to make sure that those expert retailers and those quality retailers are engaged with whatever proposal we move to.”

What do you see as the potential advantages of agency?

JMS: “If it’s to work, we have to make the customer journey seamless, from online to dealership to ownership and back, always with us joining each step together and ideally acting on something before they even think it, such as when to renew a lease. That’s not just online but in person, too - and I think it’s too easy to downplay the human side of it.

“That’s in part because we have to be more flexible to how the customer wants to buy and at what point in their buying journey they come to us. Traditionally, we've looked at a rigid funnel of how a customer will come to us. That model simply doesn’t exist anymore, and we have to adapt to that change.

“One positive from our side is that we're entering this period of consideration at the right size. We've consolidated our network geographically, and we're close to the spread of dealerships we want and need to succeed. In contrast, we can see other manufacturers are held back because they haven't addressed this.”

You're now close to the network coverage you want, but will those remaining dealerships all look and feel the same in this brave new world?

RA: “Some will, some might not. We want coverage, but we also have to be flexible in our thinking so that the investment required matches the opportunity available. In some locations, we may not need a full dealership; we could have a more creative solution. Retail models will change. But again, that's in conjunction with our investors, because they're all big investments. So you can't change them overnight.

“Is the number and location of retailers a moving situation? Realistically, yes. But any chances won’t be made overnight. We’ve arrived where we are today by working with our expert operators in their chosen territories, and no matter how agile we want to be, it will be with their concerns uppermost in our minds.”

Can you imagine more dealers in bigger retail spaces, like a Westfield, for instance? Or more multi-franchise dealerships?

RA: “Big shopping malls are an expensive investment for a brand of our size when really what we want to do is reduce the costs for our retailers and make them more efficient.

“In contrast, multi-franchise is interesting for that very reason: it’s a great way of getting our cars on the radar of buyers who may otherwise miss us.

“Then there are other ideas; the ‘super test drive’ concept of taking cars to an area where there aren’t dealers nearby to let customers try cars, or running service-only sites, or service and used car sites.

“One of the advantages of being a smaller brand is that our retail partners are often representing bigger manufacturers too. We get quite a good inside line on what’s being tried, what’s working and what’s not. We can be agile without the need to experiment quite so aggressively.”

Do these chances make it more favourable to work with bigger dealer groups?

RA: “It’s not a direction we're consciously pursuing, no. Our mix today is two public companies, some larger groups, some smaller operators - and the priority above all else is having the right relationship with the decision-makers and alignment of our views on how to give the partnership longevity and the right aspirations. The size of the group doesn’t dictate these things.

“As I sit here today, and having spent the past five or six years shaping the group, I believe we have 95% of the right partners. That leaves the door open for the right investors no matter their size - but I also have to say that we're very happy with the ones we have.”

Where does e-commerce fit into that model?

RA: “It’s an interesting provocation, because the job of the answer is not to add anything in that's confusing for the customer. Our retailers already have some really strong e-commerce solutions, then there are some improving ones from OEMs. But the biggest challenge of all is really about how the customer wants to use online in their buying journey.

“The answer to that will vary from customer to customer, of course. The majority likely want to do some online research and then come into a dealership. But some will want to complete the journey from end to end online. Whatever their entry or exit point, we have to make it simple and seamless. That’s our bigger challenge.

“The goal is instant gratification for the customer. Whatever they came to do, we need to let them do it. We don’t have the answer for that yet, but we do believe we're getting there.”

Ultimately, despite your focus on profit, you must have ambitions to grow volume again?

JMS: “Well, our fall has been in the context of the pandemic and supply shortages, so of course we want more. But we will not grow by any means. The days of 100,000 may be gone, but the ambition of 30,000-40,000 is there, yes.

“But some of that will come from new models. Today we have 4.5 models, if you count the E as the half. We have clear ambitions to grow in line with the cars we offer in each segment, and we've already announced some future plans that look exciting.”

RA: “We aren't letting go of what we've achieved through this process of shifting away from volume targets. In simple terms, I’d rather sell 50,000 cars at £500 of profit each than 100,000 at £100 of profit. We need a balance of value and volume to protect residuals, too. And I like the agility we now have. It allows us to have closer relationships with our dealers and customers, so I would agree that the growth will come from new or refreshed model lines, not a switch to pushing volumes again. And of course we have new models coming.”