After Civic bruising, Honda fights furiously for its soul

The future of Honda Motor Co may rest with a pair of contrarian Japanese car engineers working from a drab Tokyo suburb with a hotline to the boardroom. Their mission: just say no.

Honda's creative directors Toshinobu Minami and Yoshinori Asahi are out to kill any mediocre car designs rumbling down the pipeline. In short, they have been told to stop anything like the 2012 Civic, a cheapened redesign that prompted critics, consumers and rivals to wonder how Honda had so badly lost its way.

Honda, many say, slipped into designing cars by committee in recent years and drifted away from the iconoclastic ambitions of its founder. Honda had become boring.

“Somewhere along the way, we lost the ability to express ourselves more freely," Asahi told Reuters.  That’s a startling admission at a company long praised for the quality and durability of its vehicles --a company that caught US automakers flat-footed in the 1970s with inexpensive, fuel-efficient cars like the original Civic.

Touted four decades ago for its CVCC engine that boasted cleaner tailpipe emissions -- as well as inspiring the Civic name -- Honda has trailed with advances such as six-speed transmissions and direct fuel-injection systems.

In recent years, Honda's “car guys”, the engineers that built the automotive upstart into a powerhouse, were overshadowed by the “bean counters,” financial executives more willing to cut corners on vehicle content to shore up margins, insiders say.

That approach looks good on a spreadsheet, but it also carries the risk of a backlash. Analysts and industry executives wonder whether Honda can rekindle the underdog ambition of founder Soichiro Honda. Changes at Honda can’t come soon enough after a terrible year. Slow to recover from the earthquake and tsunami in Japan a year ago, Honda’s US sales tumbled 7 per cent in 2011. By contrast, Nissan bounced back with a 14 percent sales gain to almost match Honda’s market share.

Meanwhile, Hyundai Motor Co and its affiliate Kia Motors Corp have overtaken Japanese automakers as the benchmark for value-for-money. The Koreans have also taken advantage of a favorable exchange rate to install pricier fuel-saving technologies and other extras while Japanese brands struggle to offset the debilitating impact of a strong yen.

“Honda somehow managed to get very, very far away from their engineering discipline,” AutoTrends Consulting President Joseph Phillippi said.  A financial rebound could come quicker but executives see US sales up by as much as 25 per cent in 2012.

But behind the scenes, the battle for Honda’s automotive soul is being played out in places like Asahi and Minim’s sprawling third-floor studio in the Tokyo suburb of Wako.
Since September, when they were promoted to fix Honda's car designs, Asahi, 47, and Minami, 44, have been working from Wako with a mission to shake things up.

Minami says it's a struggle to get Honda’s designers to shed a conservatism born of the consensus-building approach typical of Japanese corporate culture. “I want designers to be heard at the company, but for that I need them to stop playing nice and compete more fiercely with each other,” he said.

Out of favour

“Playing nice” has already taken a toll on Honda. Honda executives realise their mistakes.
“We should have been more aggressive,” said Honda’s top engineer, Yoshiharu Yamamoto. “The Civic is a cornerstone. And to have that car get the feedback that it did, we have to take that to heart.”

John Mendel, Honda's US sales chief, has argued fallout from Consumer Reports' poor review has been minimal, pointing to the Civic's segment-leading sales in recent months. For the first two months of 2012, Civic's US sales were up 45 per cent.

But industry research firm TrueCar.com says incentives on the Civic have more than quintupled since its debut last April to almost $1,900 per car in January 2012, suggesting sales are being driven by attractive deals.

Mendel acknowledges Honda cut costs on the Civic interior because it believed back in 2008 that consumers would want a cheaper small car at a time when the economy was sliding into a deep recession. Instead, rivals including Hyundai, Ford and GM all found American consumers ready to spend more for small cars with richer interiors, quality sound systems and extras like navigation and heated seats. Honda is rushing a redesigned Civic to market late this year, essentially a facelift to protect the image of a car that is key to both Honda's future and heritage.

The Civic is the model that famously put the then little-known Japanese automaker on the map in 1972. The Civic now accounts for one of every five of the three million-plus cars Honda sells worldwide.

“They erred by taking the content out of the vehicle,” said Mike Shaw, who owns Honda dealerships in Texas and Louisiana.

Missing ‘Mr Thunder’

To avoid boring redesigns, Honda has had a long-standing policy of not letting engineers lead development of the same model twice. The idea was to encourage project leaders to “compete” with the previous version.

“The structure was there, but maybe not the culture behind it,” Minami said. “None of us, including top management, has ever worked with Soichiro Honda. It’s a totally new generation.” During his reign, engineers lived in fear of Soichiro Honda's surprise visits, which typically ended in deafening rants against mediocrity that earned him the moniker “Mr Thunder.” He retired in 1983 and died nine years later.

Honda executives want to shatter that view. R&D Chief Yamamoto, has a message for designers: worry less about what other departments may want. “I want them to work more freely.”

In the past, Honda designers didn't need permission to veer off script. They often banded together to work in secret on an alternative version of a car when unhappy with the approved blueprint. Going “behind the screen,” as it was called, often had the tacit backing of managers who felt it upheld the spirit of Soichiro Honda.

Asahi knows the power of going “behind the screen” first-hand. In the late 1990s, he began dreaming of an open-top sports car for Honda and spent his days drawing out models even though he was assigned to focus on car interiors. A rushed clay model that he developed with a group of like-minded designers outside work hours became the prototype for the S2000, a zippy roadster launched in 1999.

“I’ve personally seen a lot of these dreams become a reality at this company,” Asahi said. “That's why under the new Honda, I want to draw out the guys who have that kind of passion and make cars that way.”

Honda's creative duo now has a direct line to Chief Executive Takanobu Ito. Frustrated with the pace of decision-making at Honda, Ito has put himself in charge of Honda’s car operations, splitting the core of the company into three units headed by engineers: the Acura premium brand, mid-sized vehicles and small cars.

Analysts say the first true test for the “new” Honda will come with the redesigned Accord due later this year. The Accord is Honda's best-selling vehicle and previous generations made the Japanese automaker's reputation for easy-to-drive, smartly engineered cars with good fuel mileage.

“It has to be a home run,” said Head of Grant Thornton's auto advisory practice, Lars Luedeman. “It’s their bread and butter, a very high-margin vehicle.”

Unlike the Civic, the next Accord will be equipped with Honda's newest engines and transmissions -- technologies the company hopes will make its cars the most fuel-efficient in their class by 2015. It will be the first time in a decade Honda has overhauled the Accord's engine.

Rivals have watched Honda’s missteps with private glee.
Nissan even ran a commercial in August last year which shows a loaded Nissan car carrier being driven past a frustrated Honda dealer in a poke at its rival’s low inventories due to last year’s Japanese earthquake and Thai floods.

For Asahi and Minami, the pressure is on. They must ensure the next generation of Honda vehicles wow consumers. “What we need to do is to raise the quality of the output by such a high margin that it will shut everybody up,” said Asahi. To that end they have already sent numerous projects back to the drawing board, they said. “The tension when we did that -- it was like all the air was being sucked out of the room," Minami said. "But that is our job.”