HONDA Australia is officially withdrawing from the high-pressure sales race and monthly targets and bonuses in a move it believes is the only way for the company and its dealers, or agents, to be profitable in the Australian market.

The company believes that under the new arrangements it can make money by selling half the 40,000 units it traditionally sold pre-COVID and has now set its sights on 20,000 units a year, or roughly two per cent market share.

The company told GoAutoNews Premium in a special briefing that chasing volume sales through discounting, targets and bonuses was too costly and that, by stripping that wasted cost away from the business, what remained was a semi-premium market entry that makes money from both Honda and its agents.

In a courageous departure, the company has adopted a version of the Price Promise Honda introduced in New Zealand 20 years ago where the price of a car will be the same at every Honda retail outlet around Australia whether the buyer is an individual, a business or a fleet.

This, it believes, will create a completely new sales environment in its retailers’ Honda Centres and a unique selling proposition that will set it apart from all other players in the market.

No-haggle pricing necessitates the appointment of its current dealers as sales agents because, under trade practices rules, selling stock at one price from individual dealerships that owned the stock would be seen as price fixing. Selling stock owned by Honda Australia as an agent is not.

The company reports that by July 1, 2021, when the new arrangements start, it will have 95 agents appointed with five-year agreements. Most of the agents, apart from a few rural dealers, are former Honda dealers which have agreed to adopt the new agency arrangement.

However, as previously reported, Honda has had a massive reduction of metropolitan dealers so rather than dealers operating in a large number of primary market areas (PMAs), fewer agents would become responsible for larger ‘areas of responsibility’ that would be run from a mothership with satellite sales and service centres.

There is a significant upside for agents on the cost side of auto retailing.

Honda owns the stock therefore relieving dealers of the cost of funding their cars for sale. It also owns the demonstration vehicles and cars available for service loans. As cars for sale are to be housed in Honda holding yards operated by Prixcar in each state and delivered to the agents to order, agents are no longer required to pay for the real estate costs of holding their own stock.

In another saving, Prixcar will pre-deliver the cars at its sites at Honda’s expense.

Honda Australia general manager of product, customer and communications Rob Thorp told GoAutoNews Premium: “This work used to sit within the dealerships. So we’re going to do a lot of that centrally through Prixcar. So we will deliver the vehicle to agents in the future ready to go. All it’s got to happen is a wash and a clean and a bit of detail before it gets delivered. So it just takes again, some work out of the network and centralises and it hopefully makes it a bit easier for them to manage.”

The no-haggle pricing is also likely to speed up the sales process.  Research shows that negotiating a price takes up the bulk of the sale’s three hours of time in a traditional dealership and it is thought that there will be cost saving through the greater productivity of agency sales staff.

The shorter time, often cited as a great source of dissatisfaction by buyers, is certain to improve the satisfaction levels of Honda buyers.

In addition, the Price Promise model in NZ, although not exactly the same, is proven to maintain resale values for Honda owners because everyone, even fleets, pay the same for the cars.

This allows agents to claim that the cost of ownership from purchase to sale is superior to those companies that participate in the discounting wars that are part of the pitched battle for higher market share, stair-step targets and cybercars.

Under the agency arrangements, trade-ins and used-car operations will operate outside the agency agreement as will spare parts. Both will operate in the traditional way.

Honda Australia says that it will be taking more responsibility for agency advertising costs and customer experience and online systems that it has developed as part of the agency move.

Apart from some changes within showrooms, dealers which meet current Honda CI standards will not have to make any CI changes to their premises as they transition to agents.

Honda Australia director Stephen Collins said the company will have 12 metro partners which will operate satellite service or sales (or both) within much larger ‘areas of responsibility’.

Honda showed an example map of PMAs versus hub-and-spoke in a metro market.  It showed 13 dealerships becoming three motherships, two with two satellites each and one with three satellites.  This reduces representation from 13 businesses to three and coverage trom 13 outlets to 10.

“They could be service-only but we see most of them will be selling and service,” Mr Collins said.

“They might be small two- or three-car showrooms. They could be in a shopping centre or could be in high-density areas that we wouldn’t normally put a dealership in.

“I think most of them will have a small showroom. So there’ll be some situations where it’s a small showroom with some sales staff, or consultants, but there might be others where there’s not and it will be referred to the hub or the mothership. So it depends on the situation.

“Certainly in the shopping centres, for example, they would be referred for test drives and so forth to the flagship site.

“There’s the ability to sell from the shopping centres, but there’s also some new concepts which we’re working on with some of our partners which is actually a service capability actually at shopping centres. So that’s why we say the flexibility of the spokes really depends on the situation in that market and the location,” Mr Collins said.

“The whole principle behind that is to maintain customer convenience, obviously for our huge service (carparc) in particular.

“But, secondly, to be sustainable in terms of profitability for our partners going forward. So these are still great facilities, but lower-cost facilities. That really helps with the whole sustainability of this model. So that’s pretty much our metro strategy.

“We will have 12 Metro partners, and they will run a series of hub and spokes in much greater areas of responsibility. So that’s our Metro strategy.

“Rural and provincial, essentially will be pretty much unchanged from what it is today. So most of the footprint we have today will translate over into the agency model.”

“It’s really about sustainability for us as well,” Mr Collins said. “For example, Jazz and the low-end models for us have had significant profit challenges. So it’s all about the sustainability of the model. So in the future this sort of model has flex; so it has flex to be able to grow or not grow.

“But currently, our plan, and we’ve been very open with all of our future partners on this, is that 20,000 is where it’s going to sit. And we think that that’s a sustainable level. Now in the future, that could change.”

Mr Collins said that through its partnership with Eagers Automotive it would see its new sales model operating from Indooroopilly shopping mall and at the new Brisbane Airport auto mall.

By John Mellor