Honda Opts for Insider as CEO Amid Car-Safety Crisis

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Takahiro Hachigo
Incoming Honda President Takahiro Hachigo. Photographer: Akio Kon/Bloomberg

Honda Motor Co. is turning to an insider who’s spent his entire career at the company to navigate out of a global auto safety crisis, after seven people died in its cars.

Takahiro Hachigo this week becomes the eighth president of one of Japan’s most renowned companies. By replacing Takanobu Ito, whose tenure was plagued by recalls and rupturing Takata Corp. air bags, he upholds a 41-year custom of Honda presidents hand-picking their successors from within.

The steps Hachigo, 56, takes to tackle the troubles caused by its supplier will help determine whether he’s the right man for the job. His supporters say he’s a listener willing to seek consensus, traits that his more autocratic predecessor lacked. Still, those attributes won’t sway detractors who want more radical change and a break from the insularity that has long characterized Japan Inc.

“Japanese electronics makers failed partly due to internally promoted top managers; I hope Honda won’t fall into the same rut,” said Kentaro Hayashi, a Tachibana Securities Co. analyst in Tokyo, who’s recommended selling Honda shares for more than a year.

Honda has so far relied on incremental steps, such as delaying new models and doing post-production checks to improve quality, rather than more radical changes such as severing ties with Takata. Defective Takata air bags that can deploy with too much force and spray metal at motorists have led Honda to recall about 20 million vehicles, by far the most among 11 affected carmakers. Most of those cars are still on the road, as Takata can’t make replacements fast enough.

Fraying Relationship

Honda said Friday it will set aside an additional $363 million to cover an expansion of the recalls and confirmed Monday that a seventh death has been linked to a Takata air bag in one of its cars. The carmaker fell 0.7 percent to 4,075 yen at the 3 p.m. close in Tokyo trading, while Japan’s benchmark Topix index was little changed.

Little known among outsiders before Honda announced his promotion in February, Hachigo will need to decide whether to maintain the relationship with Takata. The carmaker owns a 1.2 percent stake in the supplier and is its biggest customer, according to data compiled by Bloomberg.

The more than 50-year relationship has already begun to show signs of fraying. In a U.S. congressional hearing related to the air bags in December, Honda was the first carmaker to say it was turning to Takata’s rivals for some replacement parts. It also agreed to expand recalls nationwide, hours after Takata refused regulators’ demands to do so.

Fit Recalls

While Takata agreed to nationwide recalls last month, it also began to deflect blame, saying air bags may be rupturing in part because of unspecified flaws in automakers’ vehicle designs and lapses in how they tested and validated inflators.

For now, Honda and its peers are counting on Takata to continue ramping up inflator production to speed up repairs that will take years to complete.

“Honda will keep facing difficulties for at least the next two to three years with the new president,” said Koji Endo, an auto analyst at Advanced Research Japan. “Quality problems are not completely solved yet, Takata is still in crisis and Honda’s business is not doing well in many markets.”

Adding to Honda’s quality woes under Ito, 61, were five recalls for its top-selling Fit compact and three for its Vezel SUV. Lapses with those models led the company to cut pay for executives, including Ito, for three months.

Sales Target

The quality problems were widely seen as a main reason for Ito’s departure. Days before announcing Hachigo’s promotion, Ito abandoned a target to sell 6 million vehicles annually by 2017.

Parissa Haghirian, a professor of management at Sophia University in Tokyo, said it’s “clear” Honda needs a new strategy, but that it’s doubtful whether Hachigo will have the power to shake things up.

“It remains to be seen whether the sense of crisis at Honda will lead to real changes in its management style and strategy development,” Haghirian said. “I think we cannot expect the new CEO to implement drastic changes.”

Koichi Fukuo, who was in charge of product quality at Honda before becoming president of its research and development arm, said insufficient communication contributed to the company’s quality problems. The easy-going Hachigo will help improve internal communication, said Fumihiko Ike, Honda’s chairman.

Model Trains

“He listens to people,” Ike said. “The atmosphere at the company will change.”

As an engineer, Hachigo was involved in high-profile projects including the first U.S.-built Odyssey minivan and the CR-V SUV. He then managed the company’s Suzuka plant in Japan and rose through the ranks via executive roles in Europe and China before becoming managing officer last year. His hobbies include collecting miniature cars and building model trains, according to the company.

His appointment surprised even among those loyal to Honda’s tradition of promoting presidents from within, because of a unique gap in his resume. He’ll be the first CEO who hasn’t headed Honda R&D Co., the carmaker’s largely independent research arm, since Soichiro Honda founded the company in 1948.

Familiarity with the R&D unit is crucial at a time when automakers are racing to roll out new electric and fuel-cell vehicles, said Endo, the Advanced Research Japan analyst.

“He’s got some huge tests in front of him,” said Ed Kim, an analyst at researcher AutoPacific Inc. in Tustin, California. “He is going to have to prove himself as having less of an autocratic style of doing business while at the same time being decisive enough to quickly and efficiently fix the problems that Honda faces right now, which are considerable.”

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