The Challenges Faced By Honda Dealership.
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Introduction
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, motor circles, power products, and many more (The Editors of Encyclopaedia Britannica, 2019). The Honda main headquarter is in Tokyo, Japan. Engineer Honda Soichiro founded it under the Honda Technical Research Institute in 1946. In the institute, a small combustion engine was made, which would later be incorporated into Honda motor Company to start manufacturing motorcycles by 1949. Honda launched its first motorcycle Honda C-100 in 1959. Since then, the company has gradually grown and proceeded to open subsidiaries in the USA, Turkey, England, and many more (The Editors of Encyclopaedia Britannica, 2019). Like any business, Honda is not an exemption in experiencing market fluctuations or internal problems. The various market fluctuations are in profits, market portfolios, shares, sales, and revenue. This is due to one fact that the corporations can control not all the market factors; some elements are far-reaching. Issues like; reduction in global sales for automobiles, over-reliance in US and Japan markets, recalls of products, legislations, global market trade, and unhealthy competition are some of the few challenging factors that Honda has faced over time.
Various challenges affecting Honda
Honda, in the past, has enjoyed its more significant market share in the USA and Asia regions where its products are top-rated. But the dynamics are changing the markets are getting new entrants; therefore, intensifying competition meaning the market dominance of Honda is under threat. Below are some of the challenges faced by the automobile giant.
Reduction in the sale of automobiles
Globally there is a reduced number of sales of cars in 2019. Honda reported a decline of 2.1% in 2020 (Greimel, 2020). As a challenge faced by Honda, sales of its brands, specifically the Asian market, predominantly reduced. Even in the major markets of “North American sales declined 4.8 percent to 474,000 units in the quarter.” (Greimel, 2020). The Asian market has recently experienced accelerated economic growth, with China being the largest market for automobiles. The implication of this is the shift in preference for making China a preferred destination for investing in. Most of the leading automobile companies are shifting their production and manufacturing to China at the local level, intending to tape 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 sales. In comparing Honda penetration rate of the Chinese market with other top rivals like the Volkswagen and ford, it is lower. These companies are producing the locally desired automobiles hence meeting the demand by consumers for them at these local markets. So Honda needs to penetrate the Chinese market to fully expand its sales, even though this comes at a time when the general automobile sales in China have reduced by 2019 survey. So the various partnerships are part of the stiff competitors that Honda company has experienced in the Asian market, specifically China.
Overreliance on core markets of the US and Japan
Over-reliance in a specific market inhibits exploration of new territories or markets. In the sales report of 2018 by Honda Company, the most substantial market contributor to its revenue are the US and Japan. With the US taking the helm with a revenue contribution margin of more than 45%. And the whole of North America, which is Hondas largest market contributing more than 50% of revenue by 2018 (Pratap, 2019). 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 the rival companies (Greimel, 2020). The company is entirely reliant on its strongholds hence hindering it from penetrating other promising markets like that in China and Europe. 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.
Recalls of the vehicles.
In the recent past, Honda has been dealing with the highest number of recalls. Approximately more than 11 million recalls were witnessed between 2008 and 2017, which statistically was very large in terms of error margin (Pratap, 2019). The recalls signified issues on; passenger safety and on quality of the product. These recalls are bad for business; any lousy review hurts the company. As long as the quality is compromised, the consumers are not satisfied; hence sales are reduced, meaning no profits. One Honda brand that has been recalled on the grounds of transmission defect is the Honda Odysseys (Palmer, 2019). The Honda Odyssey’s transmission would unpredictably shift to park while the car is being driven, which is very dangerous. Due to these recalls, some products of Honda, including the Honda civic has dropped in rankings, something that the company’s CEO, Takahiro, also acknowledges, and he says that Honda has lost its mojo. Other significant recalls were those of the hybrid vehicles which were recalled five-time back to back in 2013and 2014 with customers sighting issues of transmission defects (Pratap, 2019). Recalls being common in the automobile industry Honda needs to address their surging number of recalls.
Organizational structure and bureaucracy
Of all the significant challenges that Honda has experienced the most severe is on the red tape and its organizational structure (Pratap, 2019). The red tape is so complicated and is always hinted to have refuted trials of innovation and new investment in technology. The bureaucracy within the Honda organizational structure limits growth within and without the company. In any organization, if the leadership is flawed, the output will inversely get compromised. The administration lays down the framework, goals, and vision to be followed by the employees if all this are frustrated the employee commitment to the firm subsides and the best skills get poached this will negatively affect the firm.
Solutions to the various challenges.
In addressing the various challenges faced by Honda, the following recommendations are necessary for the flourishing of the company; on the issue of reduction in car sales. The global market faces it all, so the relevancy of the product determines its demand. So Honda can develop a new automobile model solely targeted at Chinese consumers. The move will reduce the over-reliance in there already established markets hence having venture at new markets maximizing their revenue. Honda must join its competitors in developing partnerships with local automobile manufacturers in china to expand its sales and manufacturing network. And in reducing the overreliance on these established markets, Honda must penetrate China and other promising markets in Europe. On the issues of recalls, vigorous measures must be enacted on the quality assurance department of the Honda Company with strict policies in regards to quality. Only defects get recalled meaning it is issued on material and engineering, which can be well managed within the institution. The number recalled must be reduced to smaller portions to get reputable consumer reviews and satisfaction, which in turn will influence referral to Honda products. The organizational structure must be simplified to give room for innovation and penetration of new markets as the automobility industry is making sharp advances in technology; therefore, Honda should not be left out.
Conclusion
In conclusion, Honda, like any other business, is bound to face challenges as they are not the only players in the global market. And again, the global market economy is not a monopolistic type of market; hence it allows many players in the market. So the strategies employed will determine either the success or the meltdown of the business. Again how best the challenges are tackled coherently determines a company’s ability to outdo other players in that field.
References
Greimel, H. (February 07, 2020). Honda’s quarterly profit declines 2% on falling sales, r&d costs. Retrieved from https://europe.autonews.com/automakers/honda-quarterly-profit-declines-2-falling-sales-rd-costs
Palmer, Z. (2019, April 25). 2018-19 Honda Odyssey recalled for transmission problems. Retrieved from https://www.autoblog.com/2019/04/25/honda-odyssey-minivan-recall-transmission/
Pratap, A. (2019, August 21). A Detailed SWOT Analysis of Honda Motors 2019. Retrieved from https://notesmatic.com/2019/08/honda-motors-swot-analysis-2019/
The Editors of Encyclopaedia Britannica. (2019, March 29). Honda Motor Company, Ltd. Retrieved from https://www.britannica.com/topic/Honda-Motor-Company-Ltd