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Over the past decade Honda has changed its approach to the UK market, dramatically reducing volume and cutting its dealer network. Now upping its electrification, what does this mean for the brand and its dealers?
Honda is pushing forward with its electrification, announcing two full electric models and six new hybrids, with an aim to have 30 BEVs by 2030. The brand is also looking to be carbon neutral by 2050 across all aspects of its network.
Honda UK made the decision to cut its volume in 2013. In 2008 its volume stood at around 100,000 units, but today it is outputting 30,000 units. This was done to “create a sustainable business model”. And it worked; Honda has gone from a 0.7% profit margin in 2013 to 3.3% in 2022. It is now in a profitable position in the UK. In 2018 it reduced its dealer network in the UK by 33%, which amounts to around 100 dealerships. The network is currently down to around 130 franchises, and, Honda said, will continue to reduce.
As Honda continues to change its UK network, it is also bringing in new EV and hybrid models to match environmental commitments. Motor Trader spoke to Rebecca Adamson head of automobile (UK) at Honda Motor Europe, and Jean-Marc Streng, managing director at Honda UK on how all this will affect dealerships, how volume reduction has helped business, and their thoughts on the agency model.
Honda launched its futuristic Honda e in 2020, and it has now announced that its core range has all been electrified. On this Adamson said: “When we launched the Honda e we went to the network and asked who wanted to be an electric vehicle dealer, and 100% of the network signed up.
“That required some investment from the network. But if you are a motor retailer, you must engage in electrification for the future. The primary cost was the installation of chargers. From our perspective, it’s all about the training because there is clearly a step change for technicians in ability and capability, and safety is a priority. We are all learning what the requirements are together, and we continue to train our networks. We have minimum requirements that must be met in terms of technician training before anyone’s allowed to work on electric vehicles. With electric vehicles, there are maybe one or two technicians in every site that can handle them. Our goal is to increase that to a point where every technician within the network is trained and qualified to operate battery electric cars.
“We’re fortunate in that we have a very low turnover and right now one or two trained technician is perfectly acceptable for the number of electric vehicles we have out there.”
Electrifying its line-up is part of Honda’s commitment to be carbon neutral by 2050. This will require the brand to look at all facets of its business. Streng added: “Manufacturing has already taken action to reduce CO2 emissions. We also consider transportation the same way, and the purchase and sourcing of goods. So, it’s not only the production of cars, but also everything to do with distribution and storing too. We have a project in place to install a wind turbine at our storage facility in Belgium.
Adamson continued: “We also have a new initiative in the UK around battery energy storage solutions. Our expectation would be that by 2050, all our operator partners would meet our carbon zero standard. We are starting to put in a KPIs and measurement to see exactly where we stand, and that’s part of our requirements for our work with a suppliers.”
Keeping customers
Throughout Honda’s alteration of its network, it has placed an emphasis on customer retention. How has it done this? And with model line-up changes on the horizon, will the customers stick around? Adamson said: “In terms of retention, our focus has been on sales and aftersales historically. I think there’s been a perception within our brand that our customers didn’t borrow finance, they bought cash. We have really focused on PCP as an effective way to purchase a vehicle from a customer and manufacturer perspective. From both angles, it works.
“In 2014 we really started in earnest to make sure that our PCP and our overall finance propositions were strong. We now have 80% finance penetration across the new car range. What we also see in our used cars is strong finance penetration as well. 50% of all used car buyers that buy through Honda, financing on PCP, buy a new car next time around. That’s a great retention tool in transitioning customers from used to new and making it and affordable way to make that step.
“We also have a five-year service plan in the market, which again has been in play seriously since 2014. And we have 85% penetration of new retail vehicles are sold with a five-year service plan. So clearly that’s key to keeping our customers engaged and keeping them coming back. The network needs to look after those customers to keep them engaged. But we know we have a strong loyalty as we move forward.
“In terms of the transitioning through products and powertrains, we see hybrid as stepping-stone tech to electric. It’s a big challenge and a priority for us to make sure there’s a customer acceptance of the new tech as well, and not forcing people into a car that it’s not right for them and they can’t live with.
Streng added: “We are quite confident that our customers will follow us toward electric adoption. We have their trust, so because they trusted us for the past 20 years, why wouldn’t they trust us to deliver an EV?”
Dealer relationships
The decision to cut its network is one that Honda stands by firmly. Adamson explained that the previous network size was based on an 80,000-unit volume, which is not how Honda approaches business anymore. She said: “I’ve been part of that relationship from the start seeing it all the way through and I was head of network development when we made the decision to reduce the network. And the decision was correct. We had a network that was structured based on an 80,000 volume. And clearly that was not sustainable for us or the network as we moved forward. So, we had a clear plan. We discussed that plan openly with our investors first, way before the final implementation, so everyone had plenty of notice. Even for those dealers that were leaving the franchise we didn’t just sit down and go here is your termination, we talked to them about it. I think we approached it in the right way.
“When we announced it to our investors only one of them stepped out, the other 13 stayed. So, I think that’s a demonstration of strength. You can have a great strategy but if you implement it badly, and when you’ve got a partner like an operator, you must implement it well. We have been clear all the way about the benefit to retailers and to us, certainly the first four or five steps were all about retailer benefit and improving their bottom line, which enabled us then to make improvements to our bottom line. It’s always been about mutually beneficial outcomes.”
And Honda has looked to reduce the pressure on retailers by removing manufacturer targets and focusing on forward orders rather than registration.
On this Streng said: “Even our commercial support is mostly based on customer order. We made that shift even before supply constraints. We measure dealer performance on customer order so, as a result, there is probably less stress over the future, because we will declare how much supply we will get in over the next three to six months. But since retailers have no crazy targets in terms of volume, the pressure is much lower.”
Adamson added: “It has been a change in how they approach sales and how we operate. But I think we’re clear that our business model is to operate a forward order situation. There will always be, on most cars, a 12-week lead time. What that then does is also align customer ordering to factory production, so we’re much closer to customer demand. Historically if you’ve got stock on the ground, it’s not what a customer has ordered, it’s what you’ve anticipated the customer is going to order. Forward order is a more organic way. It’s a small thing, but it has had a positive impact.”
Finally, Adamson and Streng spoke briefly on their opinions of an agency model. Adamson said: “Agency is an interesting one. It can mean different things to different people. The key thing for us is with any model you need an invested partner. So whatever that model is, it needs to work for both us and the operator. It cannot be enforced by the OEM. All that’s going to happen is that the retailers that we’re dependent on will walk away from us and we’ll lose our route to market. So, for us we are looking at all the potential business models for the entire range and the best routes to market. We haven’t finalised our view.”
Streng concluded: “The need for bricks and mortar remains. The in-dealership experience is all about understanding the car, and you can’t do that as effectively online. But we are probably in a position to adjust our business model if needed, with the support and acceptance of the dealer network.”