Honda dealers’ challenge? Keeping up with demand

Last year was a record year for the Honda brand, as it tapped into the light-truck craze that propelled the industry. But hidden within its sales gains were declines for the Accord — which got a midlife refresh halfway through the year — and capacity constraints for the subcompact HR-V and midsize Pilot, not the vehicles any dealer wants to be short on.

Success in 2016 will mean relieving some of the tight supply as well as keeping up with demand for the all-new Civic, a car that’s already red-hot. The second-generation Ridgeline also goes on sale, and a new Odyssey minivan will break cover later this year.

Bob Navarre, 58, owns Valley Honda in Aurora Ill., and is serving as chairman of Honda’s dealer advisory board through June. He spoke with Staff Reporter David Undercoffler about what’s going on in a Honda dealer’s world right now.

Q. How was 2015 for Honda dealers?

A. We had a terrific 2015 for Valley Honda. It was our most successful year so far, and I think that is typical for Honda dealers nationally from what I understand. Honda doesn’t share all of the data, but on a high-level basis what they shared generally is that 2015 was very, very successful in terms of overall volumes and profitability.

What major issues do Honda dealers face?

Our challenges are really good challenges to have at Honda. I’d like to have more Pilots to sell. That’s a terrific challenge to have. Our Pilot is red hot. It’s been extremely well received in the market. … But there are only so many Honda can make, and I think there’s a lot more demand than they can make. So we’re telling Honda “Hey we’d like to have more Pilots to sell” from a dealer advisory board standpoint.

The CR-V has been an amazing car for the last five years, and we want to make sure we keep that momentum going throughout the year. Oftentimes selling a car in the last year of production gets tough, and you want to make sure it stays strong. But customers really like the car so it’s not problematic.

The HR-V is another one. That thing has been a home run for us. We can’t get enough of those. We’d really like to have five times the production we have right now.

We’d love to have our Ridgeline truck today. We think the new model will be a good seller. We’ll have it soon, but it would be wonderful to have that product today to sell.

In the fourth quarter of 2015, some dealers reported squeezed new-car margins and growing new and used inventories. What are Honda dealers seeing so far in 2016?

Frankly, it’s been the opposite of that for us. Sure, there may have been some models where it was a little different. But overall our inventories were really well-balanced. As we came into 2016, our inventories were down compared to a year ago. … That doesn’t mean that that’s a negative for us, it means things were more in line for us as we came into 2016. [Inventories] were high as we entered 2015. I think we’re pretty consistent with the way our allocation system works.

Plus we had the model changeover for Civic. So that really was helpful as we made the transition from 2015 to 2016. I really can’t think of a line where we were out of balance.

Should Honda step up incentives in some form — say, sweeter lease deals or more cash on the hood — to keep sales growing?

My experience with Honda on the incentive side is they have always responded with support that’s needed. … And I don’t think that the dealers are really worried about that. I haven’t sensed that from my fellow advisory board members. If [Honda] sees the need to move, they will.

When you drive our products and you compare them to the other cars on the market — there’s great competition out there, and I respect them, but our cars are extraordinary. … And I think, strategically, if you just take the new Civic or Pilot or HR-V, if you’re creating products that perform extraordinarily and have the features that customers are looking for, you’re likely to have less need for incentive support. And I think that’s really what’s happened.

Is a sports car important for Honda right now?

That’s a great question. The upcoming [Civic] Type R is something that we as a board are really excited about. We think that car can really speak to the halo effect that you look for with Honda performance. [The car] has the look and feel and performance that Honda has built its reputation on. So I think as we look down the road at the Type R, it is something that Honda dealers are going to be really excited about in terms of getting a product that screams of the Honda image and performance that we are used to from the old days.

What does that mean for a sports car?

It’s always fun to have a real fun-to-drive, sexy convertible. But those cars tend to have a very short lifespan in my experience in the car business, and I would imagine that from a manufacturer’s standpoint they can be very challenging from a profitability standpoint. What’s cool about the Type R is it brings all of the performance that we’re really looking for, and if it’s done correctly here in the U.S., it will give us a halo effect that we’d really like to have.

“We’re always asking Honda … from a dealer advisory board perspective … to look at areas where they can utilize their flexible manufacturing and platforms they have, to find areas that might fill a niche that we’re not currently addressing. … like Jeep Grand Cherokee — a product that’s a little smaller than the Pilot and a little bigger than the CR-V. That might be something that’s worth taking a look at. We don’t try to get too specific in encouraging them for new stuff. We just ask them to consider things.”What’s missing in the product lineup?

Are Honda dealers feeling pressure from Nissan in light of that brand’s aggressive stair-stepping and some of its fleet sales? Also, Honda’s incentives have been well below the industry average. Is that something you think Honda can keep up as the industry starts to plateau and possibly even decline?

I’m not so concerned about ambitions of Nissan. Their business model is different than ours. I respect them as a company, but Honda has a very clear focus. We’re not selling cars into the rental companies, and I’m pleased with Honda’s focus on making really unique, high-performance, luxury-feeling products. That’s really evident in the 2016 Accord, which got a minor model change. It’s extraordinary to drive that car. The new Civic is incredible.

So I think when you take the Pilot and the Civic and the minor model change to the Accord and you look at what we’re going to see with the new Ridgeline, I think you’re seeing a really unique focus on the part of Honda to enhance the product in a way that separates Honda from the pack.

That’s the thing that you and I both know several years ago that we were missing with some of our products. We’re getting that Honda DNA back into our products that dealers know and really appreciate.

How important is the new Ridgeline to Honda dealers? What, if anything, does it bring to the brand that no other product does?

The previous Ridgeline was a great product, but it wasn’t always the easiest truck to sell. We had a good, solid customer base that loved the Ridgeline, but it was introduced at a price point that was on the high end of the range so it limited the market for the Ridgeline. So it was important for us this time around to get a product that not only had the characteristics of a Honda but also looked like a truck and was priced completely in its segment.

The new one looks good — it passes the eye test in my opinion. And I have confidence in Honda’s leadership that it will be priced more attractively than what we saw in the previous generation. This was something the dealer advisory board asked for: Give us a truck that is good-looking, that has the features and characteristics we’re looking for but is also priced to sell.

What do you hope to accomplish as chairman of the dealer council?

My hope is to make sure we bring to Honda the primary concerns that Honda dealers see across the country. I know that sounds like, “Well OK, of course you want to.” But that’s the No. 1 job of a dealer advisory board chairperson: to make sure the dealers are heard. So we have to take thousands of comments and feedback, and we have to whittle that down to the ones we want to recommend to Honda.

We try to see where is there consistency in zones and regions of the country and make sure we present that. This part is important. There’s always the tendency for other things to pop up that are important to some of the members but not reflective as the dealer body as a whole.

So when those things come up, my job is to ask them to take that back to their zones and see if it’s important to the dealer body as a whole. You have to always make sure you’re bringing to Honda what the dealers want, not what the board wants. That’s the key.

Service business should be up. What would you like to see Honda do to help dealers handle more service business?

If you go back maybe eight or nine years ago, Honda was really pounding the table on dealers expanding the service operations. During that time frame Honda raised the service facility requirements for dealers. It was quite insightful because their projections show the population of vehicles in the marketplace would continue to rise and the need for additional service capacity would be there.

During the Great Recession — beginning in 2009 — Honda suspended those requirements and extended the time frame in which they expected the dealers to meet those requirements. But they didn’t eliminate them, and that was good foresight because exactly what they projected has occurred. Service has grown dramatically. The capacity requests they put in place were what we needed in order to handle the service business we have today.

How is the Takata airbag recall continuing to affect dealers?

The communication [from Honda] has been fantastic to us. The willingness to address the things we need to address has been phenomenal. They’ve been thinking of things in some cases we haven’t thought of yet. We couldn’t be more pleased with the way they’re handling it.

I have my life wrapped [up] in this brand and to have leaders that are putting the customer first and the dealers first in terms of what needs to be done is extraordinary from a dealer standpoint. So we have approached everything from a dealer advisory board standpoint to approach everything in a very collaborative way. We don’t have to make demands to Honda. We can collaborate and say, “Hey, what is it we can do to serve our customers?”

Certainly if there are issues to be addressed, we can bring them to the table, but they’re already thinking of those things. We’ve put our heads together to make sure we retain the loyalty of our customers. That’s really the nature of the relationship we have. It’s pretty unique, I’ve got to tell you. It feels good.

I’m sure you could find a Honda dealer that didn’t feel that way, but I think that would be a rare exception.

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