HONDA Australia director, Stephen Collins, in response to an opinion article by GoAutoMedia publisher, John Mellor, said that in addition to introducing an agency sales model, the introduction of a hub-and-spoke design for the Honda network was critical to the future success of the company as it was “aligned to our business size and will allow us to maintain optimum network flexibility to meet customer expectations”.

He said that the company understood “that the decisions to reduce ownership numbers within our dealer network were not popular with those dealers who will not form part of our new business model in the future and that this is a stressful time for those dealers.

“We are firmly focused on providing as much support as we can to our dealers during this time,” Mr Collins said.

“We have and continue to hold these difficult business discussions with respect and in good faith to reach mutually acceptable business outcomes.  It is wrong to say that we have mistreated our dealers in any way. We reject any claims of unethical or disrespectful treatment of any dealer.”

Mr Collins said that so far more than 80 per cent of negotiations with dealers had been resolved.

“We remain committed and confident that we can resolve the small amount of outstanding dealer exits as smoothly as possible.

“Out of respect for our network, we will not comment publicly on individual dealer changes, as this would be inappropriate.

“We are aware there may be some challenges as our business transformation takes place, but we are committed to working with our dealer network to minimise customer disruption and issues that may arise from such a significant change.

“Honda is 100 per cent committed to the Australian market and to ensuring its long-term future in this country. It is as a direct result of this commitment that we have had to make some difficult decisions, but have always acted in good faith with our dealers and our customers.

“We are excited about our new business model and the opportunity to engage with our customers in a new way in 2021 and beyond.

A transition of this nature is not completed overnight and our intention is to do it well and thoroughly.

“This takes time and our dedicated team continues to work tirelessly to finalise all aspects of the Honda transformation ahead of the launch on 1 July 2021,” Mr Collins said.

Meanwhile, Mr Collins is also on the record in the Senate inquiry into the relationship between OEMs and car dealers, where he gave the reasons for making such drastic changes to the network and the steps the company has taken to bring the dealers along the journey.

Here is a slightly edited version of his opening statement to the Senate inquiry:

Mr Collins: We are a wholly-owned subsidiary of Honda Motor Company Ltd, selling and distributing vehicles and parts in Australia since 1969. We directly employ 160 people. We have 104 dealerships across the country, all of which are independent franchisees, and they, in turn, employ approximately 1,800 staff. In 2020, Honda will sell approximately 29,000 new vehicles in the COVID impacted market, affording us a market share of approximately three per cent. We pride ourselves on a reputation of quality and reliability that is valued by many customers in Australia and around the world.

The Australian automotive market is arguably the most competitive in the world, with 67 brands competing for a total volume of just over one million units per year. As such, the relationship between dealers and distributors is extremely important for the continued success of the Honda brand. We recognise the need to work cooperatively to deliver the best outcomes for customers.

Like many brands, we engage regularly with individual dealer operators and with our dealer council, working together to resolve issues. The business model in the automotive industry has effectively not changed in well over half a century.

It’s a complex business of new cars, used cars, service, warranty, parts, finance and insurance, and it’s getting more complex, with electrified, autonomous and connected cars. At the same time, it’s fragmenting with car-sharing and many online services, just to name a few. On top of this disruption, the industry has just clocked over 31 consecutive months of declining sales, noting the downward trend was well-established prior to COVID.

The business model today has served us well, but in our view, it’s outdated, it’s broken, and it must change. It is simply not sustainable, and the outcome will be disastrous unless we at Honda change.

In May 2019 we openly discussed with our business owners these challenges and the uncertainty of the future. We informed our dealers that we were conducting a full review of our business with the aim of reporting back with a sustainable business plan for Honda and its dealers into the future. It took us nine months to complete this detailed review.

In March this year, we announced our intention to change our business model from July 2021 to ensure our survival, two years prior to the conclusion of our current dealer agreements.

These changes included, amongst other things, transitioning to a more premium positioning with lower volumes; requiring significant changes to our dealer network; and also changing to an agency model for new cars. This decision was very significant, and it is purely aimed at securing our long-term future.

We are 100 per cent committed to the Australian market, but we need to be viable to be sustainable. Failure to be sustainable will see more brands exit. We understand these changes are tough on dealers, particularly those who will not continue their journey with Honda. It’s emotional, and it’s never easy to receive these difficult messages.

We undertook a thorough, objective and considered process to determine which dealers would form part of the new agency model. We did not target specific dealers or arbitrarily preference some dealers over others. We have also adopted a consistent and transparent approach to our dealings with the exit dealers since our announcement was made. This included a process of consultation and a compensation framework which, in our view, is fair and reasonable.

The framework aims to put dealers in the position they would have been in had their dealer agreement been performed by Honda to the end of its term. We partnered with leading accounting firm Deloitte to help us manage this process. At no point has Honda, either directly or through Deloitte, engaged in any intimidation tactics or placed undue pressure on dealers to accept compensation packages.

Each dealer was given the opportunity to put in submissions and engage individually. We answered any queries the dealers had. liaised on their submissions and thoroughly assessed the submissions that were made. We also encouraged the dealers to obtain independent professional advice, which many of the dealers have done. We gave 15 months notice and we actively participated in mediations that, more often than not, yielded results.

It would be inappropriate for me to disclose specific details about what was discussed confidentially and agreed with some dealers. However, I would like to tell this committee that we have come to a commercial resolution with over 80 per cent of the exiting dealers, with more expected to come in the coming weeks.

Going forward, we are working with each dealer to ensure that the wind-down of their Honda business is done in a smooth and respectful way, ensuring dealers can continue to operate during the transition period and customers can continue to receive a high-quality service.

We are very excited about the introduction of the agency model from 1 July 2021. Under the agency model, our Honda representatives will sell new vehicles on Honda’s behalf, rather than in their own right. This will apply to the sale of new vehicles only. We believe that the changes to our model will lead to an improved customer experience, making it more transparent, simpler and more enjoyable for customers.

One of the features of this new experience will be the introduction of price certainty across the network. We believe this will give customers greater clarity and remove the pressures—often unwanted—associated with buying a new vehicle.

For many months now, we have been working closely with the remaining dealers and expect that they will form part of the agency model. We’ve also been working closely with the National Honda Dealer Council. We’re currently working to finalise the terms of this new model.

By John Mellor