With Honda’s worldwide operations recovering from the effects of the natural disasters of 2011, Ken Keir describes Europe’s key part in the company’s recovery plan.
To say that 2011 was a tough one for Honda is perhaps understating the adverse impacts wrought by Japan’s March 11 earthquake and extensive flooding in Thailand.
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“For seven months of last year we were – at best – at 50% of [normal] production. The Tier 2 and Tier 3 suppliers were severely impacted,” Kier says.
And operations in Europe were impacted, too (the start of production of the new Civic at Swindon was delayed), with Honda Swindon production down by around 20%. As well as the impact of the natural disasters in Asia, Keir says that the high value of the yen played another part.
“The high yen makes it very difficult to bring in product,” Keir maintains. And he also admits that the economic crisis has meant that Honda has delayed some product renewal to save money. “There is no doubt that we have been affected by ageing product over the last two years,” he admits.
After a grim 2011, Honda’s 2012 corporate plan is designed to underpin a recovery for the firm. To counter the strong yen, the company will further develop production outside Japan. Swindon is well placed to benefit as the company looks to grow European sales.
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By GlobalDataKeir says that the ageing product issue will be addressed by “bringing in a lot of new product”. He says he is looking forward to new cars every year for the next four years to fully replace the current range.
He stresses the importance of greater R&D activity being developed in Europe. “We have to get back to product that suits our customer. But also, Europe is the bastion of motor industry style and perceived quality on a world scale. Quite often this is ‘soft engineering’ – touch, feel, interior design. If we get it right in Europe, it’s going to help us on a world scale.”
Keir sees Honda’s Swindon, UK, factory as a cornerstone in that development. “The new Civic is coming down the line now and has been received reasonably well across Europe,” he says. “The new CRV will go into production in September and, importantly, the new range of engines will be produced at Swindon as well, starting with the 1.6-litre diesel engine.”
Honda wants to double car production at Honda this year and get output back up towards maximum capacity of 250,000 within two years. Keir sees the addition of engine options in tandem with new product as crucial to exploiting opportunities ahead for the company. The small diesel engine will be, Keir maintains, a class leader in terms of efficiency. He relishes having that engine in Europe and also new petrol engines for Honda’s upcoming European product renewal wave.
“We want the best in terms of environmental credentials,” he says. “But we want to maintain Honda’s sporty image, too. And the halo will be the NSX which will be a Honda [in Europe that is; it will be an Acura in markets where the Acura premium brand sells] and will be introduced within the next three years.”
Honda is also reconstituting its European dealer network, another sign of a need to put some things right. “Very little in the UK, but on a pan-European basis,” he adds. He sees this as leading to a better relationship between Honda and its customers. “But more importantly, this presents a bigger business opportunity for dealers to expand. We’ll have less dealers and they’ll have a better opportunity to make money. Frankly, if dealers don’t make money they can’t look after customers.”
In an industry dominated by talk of scale and alliances lately, what about Honda’s determination to stay independent? Is that view still holding sway?
Keir is ready for this and cites three reasons why Honda continues to place great importance on maintaining its independence. “Well, four reasons if you include our history with Rover,” he quips. “That wasn’t the greatest success…”. (No, it wasn’t, but let’s not go into that here.)
The first factor is culture. Honda, Keir maintains, has a deeply embedded culture of independence. “We don’t take government support anywhere in the world. Any penny we spend we have to make sure we get a return on it. It’s a mindset.” Fair enough. Proud independence. That works as long as you can still make money.
Factor number two is the fact that Honda is a diverse engineering company, not simply an automaker. “R&D is a separate business that develops products, whether it’s Honda Jet, Asimo, cars, bikes or whatever. They develop this product for the sales side. They [sales side] have an influence but we are essentially an R&D [driven] company. There’s a huge level of protectionism of our intellectual property.”
Keir says there have been approaches in the past (for example GM on engines eight years ago), but nothing has come of it.
And thirdly, Keir quite rightly points out that some of the industry’s big mergers have “not been soaked in success”.
Some critics say that Honda has been under-performing in Europe for some time now, that it loses money, has had a poor sales network and been hampered by high prices on models kept around too long, culminating in general brand image problems. Keir acknowledges that there have been difficulties and that they are now being addressed with new products and a revamped dealer network.
But he also maintains that Honda has stayed out of some of the volume business that other car companies resort to. “Honda is a business. The idea of selling volume for volume’s sake does not come into our ethos. That is why in many cases, we are inconsistent in the corporate market, at best. We are not and never have been prepared to offer big discounts. One of the reasons for that is that we do protect our [retail] customers’ investment. And if you look at residual values, we have some of the highest for the segments we are in. We see that as important. We see customers changing a Jazz for another Jazz because the gap is small enough for them to do it. But it also means that in the corporate market we have never really been a player.”
Looking ahead, Keir is upbeat on prospects for hybrids in Europe. He points out that 50% of the cars Honda sells in Japan are hybrids and is convinced that they will eventually gain traction in Europe. And hybrid production in Europe (Swindon) would follow when numbers allow, to make it viable. Lagging European consumers will catch up eventually, he thinks, and he has a warning for Europe on diesel particulates.
“Hybrid seems to have the persona of being boring. Toyota and Honda have to take some of the blame for that because we developed cars that were developed to be a hybrid – the Pruis and Insight – and they proved to be very practical cars. But there is a mindset of it [hybrids] being boring and there’s no doubt that small diesels [with which they largely compete in Europe] are very good in performance terms. But at some point, when you take the politics out of it, somebody is going to start looking at the particulates. At the moment they don’t count in Europe the way they do in the rest of the world…”
There’s an interesting observation on the Hybrid Civic. Keir maintains that the hybrid powertrain was introduced on the 4-door model and that 25% of the buyers for the Hybrid Civic simply wanted the 4-door saloon. “We in this industry tend to get hung up on the power unit, when actually the customer wants a certain performance and fuel consumption. We still think that hydrogen is the ultimate answer, but we are going through an evolution of petrol-hybrid, plug-in hybrid, battery and so on. No one knows what the final conclusion will be, but the customer will go along with the infrastructure that is in place, whatever it is. And that goes with the ability, for the customer, to use the product the way historically, that they are used to using the product. It’s about personal mobility. I drove a Nissan Leaf recently and I thought it was superb, but what are you going to do with it unless you live in central London? We are still talking up, technologically, something that is not quite there to suit the customer.”
Battery cars are a waste of time then? “No, we are developing them as well, but we have still got to work on the basic technology. It’s not a case of giving up, quite the reverse. But nobody has the answer to accommodate what the customer expects when they buy personal mobility.”
Honda has made some strides with hydrogen (FCX Clarity), so how long before that can come into the picture? “We think it will be economically viable during this decade.” And 2015 is a year that ought to be significant with a number of car companies and energy companies pledging to put tens of thousands of hydrogen fuelled cars on the roads by then. But Keir acknowledges there is a long way to go with hydrogen infrastructure, though he says Honda is talking to oil companies. “The petrol companies understand that this has legs. They will invest when they realise that the car companies can make this real, that it’s what the customer wants and that it is viable.”
As far as hybrids go, Honda is moving away from mild to full, to a next generation two-motor hybrid set-up that will be on the Accord this year in North America. More powerful hybrids are seen as the way forward generally.
“We’re going through an evolution, as an industry,” says Keir. “We will continue developing hybrids and introduce to the market when it is a viable proposition in the market. If the numbers are there, then we’re in a position to introduce [the product].”
In Europe, Honda expects to be back in profit “within three years”. That would mean selling 300,000 cars in Europe, some 80% of those sales sourced from Swindon. At the moment Swindon builds the Jazz, Civic and CRV. That could mean further expansion of capacity for Swindon and Keir says that is being considered right now. Another model added? “Maybe, but it depends. If the next CRV does really well, we might need additional capacity for that.” Capacity could conceivably be raised to 280,000 units a year from the current 250,000 limit, but would require additional investment.
How does Keir see the brand, where it sits? “We have a phrase we use inside Honda called ‘alternative premium’. It’s quite hard to quantify exactly, but the positioning is like this. Honda has a history of introducing product and, you could argue, being ahead of the game. For example the CRX, Prelude, FRV, HRV, NSX, Shuttle…how do these come about? They come about because R&D has a greater level of flexibility and freedom at Honda. New technology for the NSX may be amortised via use on other products in the future. We have a history of introducing products that don’t offer continuity. That may be frustrating from a sales basis – you lose track of customers and then they disappear – but it is something, R&D freedom, I’d hate to see Honda lose.”
