Honda CEO says ‘fundamental transformation’ is needed

Honda CEO Takahiro Hachigo: “Management, including myself, must lead in changing our mindset.”

TOKYO — When Takahiro Hachigo was abruptly named Honda Motor Co. CEO last year amid spiraling quality problems, he pledged to revive the troubled automaker through a back-to-basics focus on better cars and streamlined production.

Nearly a year later, with Honda still battling quality issues, the veteran engineer is revamping that comeback plan.

The fix, says Hachigo, 56, will come from rekindling the company’s pioneering r&d spirit, once the envy of the industry with its knack for churning out innovative vehicles.

“We recognize the need for a fundamental transformation,” he said last week while outlining the strategy. In designing cars for multiple regional markets, Honda was growing at “a pace and scale beyond our means,” he conceded.

The recalibration targets the initial stages of r&d, creating new posts committed to design and performance. It is a return to Honda’s roots, a DNA Hachigo knows well from his days as a lead engineer on the popular Odyssey minivan and CR-V crossover.

Reinvigorating Honda’s originality won’t be easy.

The redesigned Civic shows why. When the car was launched late last year, it was hailed as a taste of Honda’s glory days. In January, it won the North American Car of the Year title.

But the afterglow dimmed last week, when Honda recalled some 42,000 of the new cars to fix a piston problem that can cause the engine to seize and possibly catch fire.

Honda’s image has been further tarnished by soaring recalls due to faulty airbag inflators made by affiliated supplier Takata Corp., which have been linked to nine fatalities in Honda vehicles. Honda has recalled 30 million inflators worldwide.

Meanwhile, Honda must tackle other structural problems, including bloated overcapacity in Japan. Because it had shifted so much production overseas in recent years, Honda failed to cash in on exports when the yen finally began to weaken.

Hachigo now aims to rebalance global production by ramping up output in Japan for exports to North America and Europe.

“The key issue will be how far the company can square the circle between controlling product quality and ramping up models simultaneously worldwide,” J.P. Morgan auto analyst Akira Kishimoto wrote in a report after Hachigo’s news conference.

Quality over quantity

Hachigo’s answer: Prioritize quality over quantity.

“Rather than set up a sales target, we first put importance on creating Honda-unique products,” Hachigo said. “After that, we will explore how to increase sales.”

The reboot offers a reality check on Honda’s unfinished realignment of the carmaker’s global operations around six regional hubs, each wielding its own r&d and production power.

Hachigo spent years setting up the structure under his predecessor, Takanobu Ito, before taking Honda’s reins last June. But Hachigo said the rapid expansion put too much strain on r&d resources in Japan and needed clearer lines of control.

“We have come to see some issues in the front lines of our development and production facilities,” Hachigo said. “This could seriously harm the engine behind Honda’s creativity.”

To steer the next phase, Hachigo replaced nearly a third of the board and promoted younger executives for new blood. He appointed new people to key roles in charge of r&d, North America and automotive operations. The changes clear the top ranks of some prominent, older-generation executives under Ito.

“It still looks like a work in progress,” Chris Richter, an auto analyst with CLSA Asia-Pacific Markets, said of Hachigo’s reforms. “Maybe a fresh set of eyes on the problem will help.”

Hachigo said electrification will play a big role in Honda’s new aura. By 2030, he wants two-thirds of Honda’s global sales to come from green cars such as hybrids, plug-ins, fuel cell vehicles and pure electric vehicles. That’s up from just 5 percent today.

Production shuffle

Honda also is cranking up production of crossovers to meet demand.

Canada, which currently ships the CR-V to Europe, will cease those exports and channel its production to North America. Honda will add production of the Acura MDX to its plant in East Liberty, Ohio, in 2017, supplementing MDXs from Honda’s Alabama factory.

Bigger production shifts are afoot. Hachigo said he wants to tap extra capacity in Europe and Japan by having plants there export more vehicles to other markets.

In the next three to four years, Hachigo aims to boost annual output in Japan to around 950,000 vehicles, from around 730,000 last year. Up to 20 percent of the total will be exported, compared with around 9 percent in 2015.

Japan may begin shipping Civics and CR-V crossovers to North America, after beginning exports of the Fit to North America last year. Japan will also export the CR-V and HR-V compact crossover to Europe. Europe will become the export hub for the new-generation Civic hatchback debuting at this week’s Geneva auto show.

Lifting output from Japan is key, Hachigo said. It strengthens a production base that is not only the cradle of Honda’s corporate culture but the template for overseas operations.

“We need to realize renovation of Honda’s manufacturing,” Hachigo said. “Management, including myself, must lead in changing our mindset, and every associate needs to change their perception and the way they work.”

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