Honda’s Mendel Talks

John Mendel is frank. “This is the worst I’ve seen.” He’s talking about the conditions—man-made, including the Lehman Brothers-associated financial crisis; natural, as in the Great Eastern Earthquake in Japan in March 2011—that have led to trying times in the auto industry overall, and for Honda in particular, as Mendel is executive vice president for Auto Sales at American Honda.

John Mendel is frank. “This is the worst I’ve seen.” He’s talking about the conditions—man-made, including the Lehman Brothers-associated financial crisis; natural, as in the Great Eastern Earthquake in Japan in March 2011—that have led to trying times in the auto industry overall, and for Honda in particular, as Mendel is executive vice president for Auto Sales at American Honda.

Given that Mendel has been in the industry for more than three decades—he started with Ford in 1976 and was executive vice president and COO of Mazda North American Operations prior to joining Honda in December 2004—his perspective is an informed one.

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Mendel estimates that with the supply disruptions caused by the earthquake and tsunami, Honda lost about 200,000 units of production in this market. And some of those units were of the new Honda Civic, which was being launched when Japan got whacked. The previous generation Civic had gone out of production, so essentially they were left with a significantly reduced inventory of those vehicles, as well as of the Odyssey, which had launched a few months prior to the Civic. Overall for the year, he thinks that Honda sales will be off by about 100,000 units rather than 200,000 because dealers sold well deep into their inventories to accommodate customers.

And as Mendel talks, he admits that people in the Honda supplier purchasing department are working long hours, trying to assess whether the massive flooding in Thailand will have a notably deleterious impact on production.

[Editor’s note: Since this was posted, Honda announced that because of the Thailand flooding it will “temporarily adjust automobile production at all six Honda auto plants in the U.S. and Canada” for a period of “the next several weeks.”  This includes about a 50% production reduction of what had been planned through November 10.  In addition to which, there is the possibility that the on-sale date for the new CR-V, which had been planned for December, may be “delayed by several weeks.”]

Then, of course, there is the issue of the Japanese yen. “It’s no secret,” he says, “that anything from Japan is tremendously more expensive now.” The Honda focus on local manufacturing—with at least 75% and even to 90%+ being produced within North America—helps the company deal with the inevitable currency fluctuations.

What’s more, the Honda North American manufacturing is being bolstered with a number of moves, the most notable of which is a new $800-million assembly plant in Mexico with a 200,000-unit annual capacity. The plant, which is presently planned for the production of subcompact cars, is to come on line in 2014.

The Honda Marysville Plant—the plant that started it all 29 years ago—is the recipient of a $64-million stamping addition. It will go to two shifts in early 2012, undoubtedly in preparation for the production of the next-generation Accord, which will start in the fall of 2012.

And there are several other investments that the company has made (e.g., $31-million at the Anna Engine Plant; $166-million at the East Liberty Assembly Plant; $191-million at the Alabama Auto & Engine Plant).

What’s more, in the area of product development, Mendel says they haven’t cut back spending by “one dime,” as the company continues to bring out new or refreshed models at a pace—based on any given four-to-five-year period—he says is unmatched by any other vehicle manufacturer. Mendel points out that in the year between the launch of the new Odyssey and the fourth-generation CR-V, 80% of Honda’s product lineup is new or refreshed.

Quality is better than ever, as well. According to the most recent J.D. Power and Associates Initial Quality Study, Honda is second in the industry, flanked by Lexus and Acura. Its products were number-one in seven of 11 segments. Its Indiana Auto Plant, which added a second shift on October 24, 2011, received the Platinum Award.

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While there are some cars that have not been performing particularly well sales-wise, such as the Insight and the CR-Z, Mendel points out something that the sales figures don’t tell: those cars weren’t developed with North America as a lead market. “We were asked, ‘Do you want any?’ We said, ‘Sure.’” But for other cars—like the Accord, Civic, and Odyssey—the U.S. market is significant, so when it comes to product development, it has an important role to play and a strong say in what the products will be like.

It is clear that competition is increasing in areas like small cars that has long been Honda’s arena, such as the Ford Focus and the Chevrolet Cruze. Mendel says that as OEMs address meeting the 2016 CAFE requirement, they “can’t do it with full-size pickups and SUVs.” Consequently, Ford and Chevy are clearly doing more in the small car area. “We welcome the competition,” Mendel says. Given how well the Odyssey has performed vis-à-vis the no-longer-produced minivan offerings from Ford and General Motors, it is no exaggeration to say that Honda knows how to compete.