Honda’s drive to restore its sputtering reputation

The company aims to make better cars and improve production “Honda’s culture used to be more open and relaxed”

Last fall, Honda celebrated the North American launch of its redesigned 2016 Civic sedan at its Greensburg, Ind., plant, where it had invested $97 million in upgrades over three years. Six days before the event, an engine on one of the new Civics seized up during quality-control checks.

By early January, three more engines had failed in the field and another had broken down at a Honda facility north of Toronto. More reports emerged of engines seizing up, resulting in a fire and one alleged injury, according to filings by the company to U.S. regulators. By month’s end, Honda had to recall 53,000 cars.

The Civic is Honda’s best-selling model, and the misstep is a setback for the Japanese automaker and its new chief executive officer, Takahiro Hachigo. Since he took over in June, the 56-year-old engineer and Honda lifer has been trying to reassure analysts, dealers, and consumers that the spate of recalls in recent years associated with faulty air bags made by Takata and other quality-control problems are a thing of the past. He chalks up many of the challenges to a complicated organizational structure and inadequate communication among Honda’s units. “We need to improve on that,” Hachigo says.

Under the previous CEO, Takanobu Ito, Honda set an audacious goal in 2012 to double sales, to 6 million units, by March 2017. The automaker built plants in China, Indonesia, and Thailand and accelerated product development, placing huge demands on its engineers.

“Honda’s culture used to be more open and relaxed,” and engineers had more time to plan and test products, says Noboru Sato, a guest professor at Nagoya University who was a Honda engineer for 26 years and has written a book about the company. “But now, with so many new technology developments required to be competitive in the market—electric cars and autonomous-driving systems—too many tasks” are being put on them, he says.

Honda’s Fit and Vezel subcompacts were called back several times each for persistent engine and transmission glitches from 2013 to 2014. The carmaker says it’s also replacing more than 30 million Takata air bag inflaters, which can rupture and spray plastic and metal shards at passengers, after incidents that resulted in at least nine deaths.

Costly recalls and a stronger yen have contributed to a 19 percent slide in Honda’s stock this year. Its U.S. market share is about two percentage points short of where it was in 2009, and it’s lost ground to Toyota

“We have given the full control back to R&D, appointing people to be responsible for planning a product and strengthening its competitiveness.” ——Honda CEO Takahiro Hachigo

and Nissan in Japan. Overall, Honda expects vehicle sales to rise 8 percent, to 4.7 million units, for the fiscal year ending on March 31.

Hachigo plans to pull off what he calls a “fundamental transformation.” He’s reshuffled top management and is consolidating responsibility for product planning, development, and evaluation. “We have given the full control back to R&D,” he says, “appointing people to be responsible for planning a product and strengthening its competitiveness.”

Hachigo has pulled back from his predecessor’s sales targets and is slowing things down. Takehiro Kono, manager of a Honda plant in Yorii, north of Tokyo, says the company has beefed up quality checks on the Fit and Vezel cars made there. “The lead time needed to roll out a vehicle has become longer.”

Honda is also rethinking its global manufacturing network and plans to shift some production back to Japan from markets where the vehicles are sold. “Making a good global model is more efficient than introducing a number of variants for each regional market,” Hachigo says.

To lock in savings from the cheaper yen, Honda will begin exporting the Accord Hybrid sedan from Japan to North America for the first time this year, and it’s also considering exporting Civic and CR-V sport utility vehicles.

To revive sales, Hachigo is counting on several new models, including the redesigned Ridgeline pickup truck, the CR-V, and the Odyssey minivan in North America. He has big hopes for a locally produced Acura luxury SUV in China and the Freed minivan in Japan. The company plans to increase domestic production by 30 percent, to about 950,000 vehicles, by 2020.

Green cars are central to Hachigo’s plans. After the Clarity fuel-cell sedan goes on sale later this year, a plug-in hybrid version built on the same platform will debut by 2018. By about 2030, two-thirds of Honda’s sales will be hybrids, plug-ins, or fuel-cell vehicles, he says.

Takata remains a big concern, says Takashi Aoki, a fund manager with Mizuho Asset Management. “It’s hard to say the bad news is over.” As for the 2016 Civic recall, Hachigo played it down, saying that replacement parts are ready and repairs can begin and that the company has taken measures to prevent the error from happening again. The speed of Honda’s expansion “has been too fast, and that has increased the workload at the research center and the plants. It’s my top priority to change that.”

The bottom line Hachigo has reshuffled Honda’s executive ranks and plans to raise domestic output by 30 percent, to 950,000 vehicles, by 2020.