The Challenges Faced By Honda Dealership and Solution.
Honda Motor Company, Ltd is a leading Japanese manufacturer of motorbikes and automobiles in the world market. Honda is known globally for its lineup of automobiles, car parts, motorcycles, power products and many more (The Editors of Encyclopaedia Britannica, 2019). Honda headquarters is in Tokyo like any business Honda is faced with various shortcomings which it has tried to mitigate to its best.
Reduction in the sale of automobiles
Globally there is a reduced number of sales of cars in 2019, and Honda is not the only suffering company. “Honda is projecting and expects at least 90% of its automotive sales growth in the current fiscal year to come from Asia” (Team, 2014). Honda reported a decline of 2.1% of its sales in 2020 (Greimel, 2020). As a challenge faced by Honda, sales of its brands, specifically the Asian market, predominantly reduced. Honda sales, even in their primary markets, also suffered the same fate “North American sales declined by 4.8 percent to 474,000 units in the quarter.” (Greimel, 2020). Amidst all this, the Asian market has recently experienced accelerated economic growth, which marked it a potential region, with China being the largest market for automobiles. The market implication of this is a shift in preference for making China a preferred destination for investing in. And so most of the leading automobile companies are shifting their production and manufacturing to China at the local levels, with the intention of tapping into that economy and reduce the operating costs. A move that has seen these companies partner with the local automobile companies in China to expand their manufacturing network as well as the sales base. In comparing Honda penetration rate of the Chinese market with other top rivals like the Volkswagen and ford, it is lower. These companies had moved with speed to create the very first partnerships with the local Chinese production companies, meaning their penetrability is quite higher than that of Honda. These companies are producing the locally desired automobiles hence meeting the domestic Chinese demand for these automobiles. So Honda needs to enhance its penetrability in the Chinese market to fully expand its sales, even though this comes at a time when the general automobile sales in China have slightly reduced by 2019 survey. So the various partnerships are part of the stiff competition measures that Honda Company has experienced in the Asian market, specifically China hindering its expansion of sales.
Solution
The global automobile market faces reduction in car sales as a whole, so the relevancy and dominance of the product determine its demand. So Honda can develop a new automobile model solely targeted at Chinese consumers to enhance the popularity of its products. Secondly, Honda must join its competitors in developing partnerships with local automobile manufacturers in china to expand its sales and manufacturing network. The move will reduce the over-reliance in there already established markets hence having venture at new markets maximizing their revenue. Apart from these suggestions, Honda is slowly making an impact in its penetration efforts to enhance its product sales and market expansion. It has joined its competitors in this market by creating a partnership with two Chinese auto companies that is, Guangji and Dongfeng (Team, 2014). In the joint venture, Honda Company has a 50% share in each, where it aims at increasing its annual production capacity. As at current Honda is producing an average of 870,000 units, and with the partnership, the production capacity is expected to boost to 1.01 million units (Team, 2014). And the same has been applied in India, which is also a promising market, Honda has increased the capacity too. With an increased supply and proper marketing, Honda will automatically increase its sales in these markets, which is experiencing high economic growth.
Overreliance on core markets of the U.S. and Japan
Over-reliance in a specific market inhibits exploration of new territories or markets by creating complacency. In the sales report of 2018 by Honda Company, the most substantial market contributor to its revenue are the U.S. and Japan. With the U.S. taking the helm of the total revenue contribution of over 45%. And the whole of North America, which is Hondas largest market contributing more than 50% of revenue by 2018 (Pratap, 2019). These markets are the main dominant contributors to Hondas sales revenue, but the tides are changing these markets are no longer profitable as they used to be. Meaning reliance in these developed markets for expansive growth is a challenge for Honda motors. However, the overall sale of Honda automobiles in the Asian market with japan excluded contributed less than 25% of the total revenue, a margin lower than its rival companies which have proved dominance in these markets (Greimel, 2020). The company is entirely reliant on its strongholds hence hindering it from penetrating other promising markets like that in China, India and Europe. These current markets that Honda is entirely over-reliant on are experiencing a fall in demand for automobiles. And this fall can be attributed to the global recession, the overall contribution of new car on the fleet is slowly dropping in the U.S. What implication does this recession has on Honda Company? It means that the current dominant market is not going to be profitable or lucrative for their business. And has a fall is being experienced in the U.S. the inverse is happening at the Asian market, vibrant economic growth is experienced there. Economically when a region is experiencing significant growth in terms of its GDP, the income increases, and so does the disposable income; hence the demand for luxury products will, in turn, increase, especially on mobility (Team, 2014). Although the motorcycle product is imperative in the Asian market, its contribution to the total revenue of the Honda Company is less compared to what the automobile would contribute. The same case has been witnessed in Europe, where Honda has lost its fair share of the market. Overreliance inhibits Honda’s growth in new markets as different markets pose different challenges and benefits; hence diversifying is quite profitable to the company.
Solution
In reducing the overreliance on these already established markets, Honda must penetrate China, India, and other promising markets in Europe. The main point of attention for most of the automobile companies are in the Asian market. The demand for automobiles in developed countries is lower than the demand in developing regions, especially China and India, which have lower car ownership rates. In the developed market, which are the prime targets of Honda, over 50% of their population own cars. In China, the car penetration and ownership rate are at 87 vehicles in every 1000 people, while in India, it’s lower at 50 vehicles in 1000 people (Team, 2014). Various measures have been put by Honda to mitigate reliance, including partnerships in the Asian markets, to boost the production capacity in the Asian market. Honda has launched new models of its automobile-like Honda Fit, which has been a success. Also, Sedans City and Amaze were similarly launched in India. The brands have specific features that make then outstanding in these markets, and that is on efficiency and fuel consumption rate. Affordability is also a factor that Honda has addressed in the newly launched products, where even the middle-class individuals can afford them. The new models were specifically targeting regions outside the U.S. and so far have seen success.