March 22 (Bloomberg) -- Honda Motor Co. was the first Asian carmaker to build autos in the U.S. and is the most dependent on the market. Now it’s also putting more non-Japanese in key roles.
North American Chief Operating Officer Tetsuo Iwamura becomes executive vice president April 1 and No. 2 to President Takanobu Ito. His new seven-member board will manage activities from product planning to production to sales in North America. Three members will be U.S. natives, the first time Americans held such responsibility, including Erik Berkman to lead regional product development and design.
“Honda quite literally has become a North American car company headquartered in Tokyo, and that’s a horrible combination,” Jim Hall, principal of 2953 Analytics Inc., an auto consultant in Birmingham, Michigan, said in a phone interview. “When your headquarters isn’t in your most important and biggest-volume market, you become disconnected. We can see that’s what’s been happening to them. This is to reconnect headquarters with their most important market.”
While Honda’s U.S. problems have been less dramatic than those of Toyota Motor Corp., which recalled millions of vehicles for unintended acceleration, they’ve been significant. Even before last year’s earthquake and tsunami cut supplies, core Honda cars such as the Civic and Accord were losing ground to Hyundai Motor Co. and Ford Motor Co. models that won praise for stylish looks and fuel economy.
Growing competition spurred Honda to offer U.S. incentives that were 87 percent of the industry average in this year’s first two months, according to Woodcliff Lake, New Jersey-based Autodata Corp. In 2008, Honda’s discounts were less than half the average.
‘Out of Necessity’
“For too long they’ve lived in this cocoon of ‘What we’re doing is good enough,’” said Maryann Keller, principal of a self-named consulting firm in Stamford, Connecticut. “There’s a recognition that that’s no longer the case, so I think they are making these moves out of necessity.”
For the first time, Honda’s No. 2 executive will be based at the company’s U.S. headquarters in Torrance, California, instead of Tokyo.
“Knowing the current competitive and complicated marketplace, rapid changes in customer needs, we think it’s better to put more emphasis on the American side,” Iwamura said in a March 12 interview. “Production and R&D, development facilities, those can be done by investing money. Localization of the people is one of the key issues.”
Honda’s American depositary receipts rose 1.1 percent to $38.83 at the close in New York.
Honda’s revenue from sales of autos, motorcycles and power products in North America was 986.2 billion yen ($12.7 billion) in the quarter that ended Dec. 31, or 51 percent of its global total. While U.S. sales of Honda and Acura autos fell to 1.15 million units last year, that was still 38 percent of the company’s worldwide volume.
Toyota, too, is giving more authority to North American executives, to improve development of products for the market and avoid a repeat of the 2009-10 recall crisis.
This month, Toyota promoted Jim Lentz to chief executive officer of its U.S. sales unit, the first time that job has gone to an American.
Asia’s largest automaker last week said Steve St. Angelo, executive vice president for North American engineering and manufacturing, will oversee regional production as part of his duties on Toyota’s North American management committee. Ray Tanguay, chairman of Toyota’s Canadian unit, is responsible for North American quality issues. Lentz will oversee regional sales, marketing and product planning.
Toyota President Akio Toyoda has said shifting more responsibility to local managers in North America is central to his goal of restoring customer satisfaction hurt by the recalls.
Honda’s U.S. car and light truck sales slid 6.8 percent last year after natural disasters in Japan and Thailand curbed output of parts and vehicles. The company’s redesigned Civic also flopped in tests by Consumer Reports, which recommended previous versions, a sign that the carmaker’s ills extended beyond 2011’s one-time events.
For decades, products created for the U.S. came from a “synergy effect” between Japanese and American engineers, Iwamura said. Going forward, American engineers making product decisions for U.S. customers is the best way to increase competitiveness, Iwamura said.
“That is one of the reasons we appointed Erik as the top man of R&D,” he said. Berkman, who begins his new job April 1, was traveling in Japan and unavailable for an interview.
John Mendel, executive vice president of U.S. sales, is also joining Berkman on Honda’s North American management board, as is Tom Shoupe, president of the company’s Alabama plant.
Honda wants to rebound this year with a 24 percent U.S. sales gain. It has made some progress, boosting sales 11 percent in 2012’s first two months, led by a 45 percent jump in Civic deliveries. The company plans to release a modified Civic later this year to address concerns raised by Consumer Reports, as well as a redesigned Accord.
The company’s U.S., Canadian and Mexican plants may also set a production volume record, building about 1.8 million vehicles this year.
The automaker is completing more than $690 million of upgrades at U.S. plants and is also building an $800 million factory in Mexico to produce subcompact models such as the Fit.
In January, Honda said it planned to build its Acura NSX “supercar” in Ohio within about two years. The racing-style coupe will sell for more than $100,000. The site and cost of that project hasn’t been announced.
Restoring its reputation as an industry innovator, a legacy of founder Soichiro Honda, is a bigger challenge than boosting sales and production.
“It’s not just the Koreans; everyone has gotten better,” Keller said. “In terms of quality and features, it’s a game of equals. It’s just a lot harder for Toyota and Honda to stand out.”
It may be years before Honda’s changes in local management are effective, said Hall of 2953 Analytics.
“It’s safe to say that if they keep going the way they were going, they were heading for a decline with other guys passing them and just doing better than they are,” he said. In the U.S., “the question is whether they’ve caught their problems soon enough to not get passed by Hyundai-Kia.”
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