Lagging In Domestic Market, Honda Launches Sales Restructuring

   Honda Motor Co., Ltd. is restructuring its car sales networks in Japan. The company has apparently been forced to take efficiency enhancement measures to cope with anemic new car sales and the impact of market maturity.

   Honda has organized marketing operations for its different groups of models into three categories: Berno, Clio and Primo. But in March this year, these 'marketing channel brands' will be scrapped and all sales will be under the Honda name. The sales system that Honda uses for the luxury Acura model in North America and China will be introduced in Japan, possibly by the autumn of 2008.

After 2001 Peak, New Car Sales Slide in Japan

Honda's new model, luxury car Acura, will be launched on the Japanese market as early as in the autumn 2008.

   In 1978, after it started producing cars, Honda opened the Berno dealer chain. Clio dealers followed in 1984 and in the following year came Primo dealers, specializing in minicars, completing the three-cornered sales system. At present, showrooms total 1,494 for Berno, 511 for Clio and 399 for Primo-altogether 2,404 in Japan. This gives Honda the third-largest network in scale terms following leader Toyota Motor Corp. with some 4,400 dealers and Nissan Motor Co., Ltd. with some 3,000.
   Honda's new car sales, however, peaked at 900,000 units in 2001, and then started to decline. Despite a buoyant auto market in North America, its sales slid 3.1% on the year to 720,000 units in 2005. This translates into average annual sales of some 300 cars per dealership, or only about three-quarters the level of Toyota. Automotive industry experts put Honda's Japan-only operating profit for the term ended March 2005 at 30 billion yen, or only about 5% of its consolidated profit of 630.9 billion yen. Nearly half its affiliated dealers are chronic money losers, they say.
   Many of these affiliated dealers originally joined Honda when it was a motorcycle maker. Because of the resulting blurred focus, Honda dealers' revenue and financial base is weaker than that of Toyota's affiliates. Honda continues to pay out large amounts in sales incentives to keep them afloat - a practice called by a Honda executive 'thin-ice dealer network management'. With limited prospects for increasing share in Japan, the forthcoming restructuring of marketing systems shows that this practice has reached its limits of viability.

Unification Will Force a Dealer Shakeout

   With the consolidation of sales channels, Honda's affiliated dealers will be able to handle all models of cars, including minicars, and will consequently be pitted against each other. Market watchers say that the losers could see their dealerships scrapped or merged under streamlining. Takeo Fukui, President of Honda, has said that sales centers for minicars would increase in urban areas and that the minicar unit sales throughout Japan were expected to rise.
   The concern is the reaction of dealers subjected to this shakeout. One affiliated dealership operator in an urban area commented that it would not be fair if Honda forced restructuring on motorbike dealerships as a result of problems stemming from its own decision to make them sell cars as well under the company's sales expansion drive. Such feelings are spreading.
   Reorganizing the dealership system was a difficult decision because of past relations with the dealers, said Fukui. It remains to be seen if it was right or wrong.