Honda declares agency transition a success

ANGST over Honda Australia’s move into an agency distribution model has evaporated, according to the company’s senior leadership.

The model – introduced in the third quarter of 2021 – was a radical change, with dealerships essentially selling cars on consignment to head office under a national fixed drive-away price – Honda’s One Price Promise.

Haggling with customers would no longer be happening in Honda showrooms, but conversely those customers would also be saved from surprise charges and from having to cross-shop dealers.

The agency model adoption also coincided with a shift in strategy for the Civic, which morphed from a hatchback for the everyman into a high-spec-only premium small car with a drive-away price of $47,200; a strategy that was also applied to the HR-V light SUV.

With affordable variants deleted from those ranges, demand has naturally gone down.

But while sales have slid, Honda remains both committed to the agency model and committed to selling cars in Australia, with the company also recently cutting the ribbon on a new headquarters in Moonee Ponds, Victoria.

“When we were getting into the agency model, there was lots of talk about whether or not we’re going to be here, are we leaving the market, et cetera,” said Honda Australia director Carolyn McMahon.

“It was a strategic move for us to be here for the next 50 years, and I hope today, in these new digs, it demonstrates to you that we’re not going anywhere. We’re here to stay.”

However, according to Ms McMahon, the timing – and external circumstances – could have been better.

“It’s been 18 months now since we went into the agency model, and we had planned for everything except a pandemic,” she said.

“So, implementation went well, we were well planned… there’s been some challenges because of the pandemic, but essentially we’re happy with where we’re at. The market has accepted the model, and we think our dealers are happy with the model.

“COVID-19 related supply (issues) are not allowing us to be exactly where we want to be with volume, but we had a plan, we’ve realised that plan, and we’re happy with it.

“We’re not immune to the delays and the volume challenges that the whole industry has been having. But what we are happy about is the demand for our products. Demand is where we thought it would be, we went into this (agency) model with a goal of 20,000 units (per year), and that’s where demand is, so that’s fantastic.”

However, while Honda’s goal of 20,000 units per year is comparatively modest (Mazda delivered over 95,000 units in 2022, for example), supply constraints are still generating a significant delta between orders and deliveries.

By the end of 2022, the first full year of operating under the agency model, Honda had only delivered 14,215 cars. With customer demand hovering around 20K, that suggests roughly 6000 orders were yet to be fulfilled at year’s end.

It’s also a far cry from Honda’s sales before its shift to an agency model, with the company delivering just under 44K vehicles in 2019, and 51K in 2018.

Volume could build back up in the latter half of this year when Honda adds the ZR-V small SUV to its local showrooms – a critical product given the growing scale of the small SUV segment. Slotting in between the HR-V and CR-V, the ZR-V could entice more customers into Honda’s arms.

And customers appear to be happy with Honda… According to Ms McMahon more than three-quarters of all customers surveyed say they are satisfied with the sales experience under the agency model.

“The actual feedback from the customers has been fantastic,” she said.

“Over the past 18 months we’ve surveyed over 22,000 customers: 75 per cent of them advocate for the agency model, that means they’re going to recommend us at the barbecue.

“We also get 82 per cent of positive and neutral feedback on the One Price Promise. We accept that there are some customers that always want to go in for a haggle or find a discount, but in the main our customers are enjoying it.

“The other really important insight that we found is that 84 per cent of customers who buy a Honda now only go to the one dealership. I think the industry average is around 67 per cent, but it means that our customers don’t have to shop around – you just go to the one dealership, and they’re liking that.”