Honda to axe every entry-level model

Honda Australia will drop entry-level model grades and reduce its annual sales volume to less than 20,000 cars a year under a new business structure that gets underway on July 1, 2021.

Shifting to a controversial ‘agency’ retail strategy in which all vehicle prices are fixed and its retail outlets are reduced to about 90 sites nationwide, Honda will cut its model line-up back to three core lines – the Civic small car, HR-V small SUV and CR-V mid-size SUV – and maintain a limited presence with the Accord mid-size sedan and Odyssey people-mover.

In an interview with carsales, Honda Australia director Stephen Collins said the brand – which only a few years ago was selling more than 40,000 cars a year – was putting profitability ahead of sales volume and market share, hence the move to abolish price-leading models at the entry level.

The company is also aiming to hold onto its remaining buyers through an improved customer experience, which as well as the “price promise” and simplified dealer network (with centralised Honda Experience Centres) will include a “market-leading service offering” that is still being finalised.

It will not, however, make any changes to Honda’s warranty, which currently matches the five-year/unlimited-km aftersales backing of its key rivals.

“We are intending to basically eliminate entry grades,” Collins said.

“We’re not chasing volume, we’re not chasing share, and we’ll be focusing on mid- to high-spec vehicles with great technology.

“It’s a little bit back to the future, if you like, and delivering those products to the marketplace [but] not chasing volume with entry models. That’s not a part of our plan.”

Collins said Honda dealers would not be able to negotiate on price, even if a competitor’s model was only a little more expensive, but that the brand’s new aftersales offerings would help sweeten the deal.

“If you’re wanting to negotiate a deal, then you can’t do that with us,” he said.

“Potentially what could happen is you’d buy the alternative … but, I will say, we also know that we have to be good value, right?

“Although price is a ‘one price everywhere’, it has to provide good value. And it’s not just the purchase price of the vehicle, it’s also the service and packaging that comes with it.

“I can’t discuss it today because we’re still finalising it, but we’re hoping to come out with a market-leading service offering that will be a part of the whole package.”

Honda’s pricing has been increasing in recent months across its model range, but Collins said the shift to premium-spec sales – which will further raise the price of entry to each model line – will not bring further price hikes.

“We don’t expect that there’ll be any material change [in pricing] when we go from one to the other,” he said.

Collins said trade-ins would be treated just as they are today, but that the agency-style business model will change many other aspects of buying and owning a new Honda car.

“When you walk into a Honda dealership from July 1, the experience is going to be significantly different,” he said.

“We believe, firmly, that this is the way of the future ... it will provide a great experience. We still provide great products at great value and that [agency business model] will differentiate us.”

The so-called ‘hub and spoke’ business model, which relies on a flagship centralised dealership in major metro regions with support from smaller outlets (and a presence at shopping centres and the like), has cut dealer numbers and forced major independent retailers to give up long-held customer data. 

Court action has been initiated by at least one prominent dealer after failed mediation with Honda over compensation for the termination of its franchise, and more news is expected on this front when the Senate inquiry into the relationship between car-makers and their dealers hands down its report later this month.

Honda is basing its business restructure on achieving 1650 sales per month, which equates to 19,800 per annum.

If it doesn’t reach those numbers, is there a threshold where the operations become unsustainable?

“Look, we know what that number is. It’s certainly below the 20,000, but we anticipate, and we are very, very confident, that we will stabilise the sales at around about that 20,000 units,” Collins said.

“The market will obviously then determine, and foreign exchange and other things, will determine whether it goes up or down from there.

“But, no, we’re confident at around that 20,000 units. When I say around, it can be a little bit below as well. That’s a very sustainable model.”